## _cr10286 — Executive Summary and Selected Annexes ## Source details **Canonical URL:** [_cr10286 — Executive Summary and Selected Annexes](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10286.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10286.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10286.pdf.json) --- ### Overall assessment - Staff’s overall assessment: the program "has made a strong start." - End-June quantitative performance criteria were met, led by forceful fiscal implementation; major reforms are ahead of schedule. Important challenges and risks remain. - Staff recommendation: "Staff fully supports the conclusion of the review." ### Stand-By Arrangement and financing - Executive Board approved a three-year Stand-By Arrangement (SBA) on May 9, 2010: SDR 26.4 billion (3,212 percent of quota). - First purchase: SDR 4.8 billion (€5.5 billion) upon SBA approval. - Euro-zone partner countries committed €80 billion; first disbursement €14.5 billion. - Second disbursement (subject to review): SDR 2.16 billion (about €2.5 billion); €6.5 billion contributed by euro-area countries. - IMF disbursement sequencing (Table 8 projections): - Disbursements (millions of euros): 2010: 10,773; 2011: 11,340; 2012: 6,804; 2013: 2,268. - Projected outstanding stock (millions of euros): 2010: 10,773; 2011: 22,112; 2012: 28,916; 2013: 29,448; 2014: 21,333; 2015: 10,312; 2016: 3,189; 2017: 354. ### Recent economic developments (selected) - Output and labor: - Real GDP year-on-year contraction: Q1: 2.3 percent; Q2: 3.5 percent. - Real GDP program projections (percent change): 2009: -2.0; 2010: -4.0; 2011: -4.0; 2012: -2.6; 2013: 1.1; 2014: 2.1; 2015: 2.1; 2016: 2.7. - Unemployment rate: 2009: 9.4 percent; April 2010 (SA): 11.8 percent; program projection 2010: 11.8 percent; 2012: 14.6 percent. - Prices and wages: - July inflation: 5.5 percent (year-on-year), attributed to one-off tax effects; at constant taxes inflation fell below the euro-area average. - Three-year national collective wage agreement (July) freezes minimum wages until mid-2011; future increases equal average euro-area inflation. - External sector: - Current account adjusting slower than expected; 2010 program current account (percent of GDP): -8.4 (program basis); 2011: -10.8. - Tourism receipts weakened; stronger domestic demand, higher oil prices, and ship orders affected trade balance. - Financial sector and banking: - Liquidity tight but adequate; ECB SMP and measures boosted repo eligibility and collateral values. - NPLs: 7.7 percent (end-2009) → 8.2 percent (Q1 2010); indications of continued slight increase in Q2. - All banks remained above minimum capital adequacy requirement of 8 percent. - T-bills (July): €4.4 billion of three- and six-month T-bills sold at an average yield of 4.4 percent, mostly to domestic banks. - Monetary/market conditions: - Funding costs not substantially increased as banks substituted deposits and wholesale funding with cheaper ECB repos. - Banks began restricting credit, particularly to households; no evidence of sharply increasing lending rates. ### Program status, fiscal performance, and known fiscal risks - End-June performance criteria met despite slightly lower revenue. - Structural benchmarks: all implemented except completion of the actuarial report (rescheduled; final report expected March 2011 for some elements; main funds by end-December 2010). - Indicative target missed: non-accumulation of domestic arrears (reflecting weak sub-national expenditure control); monitoring system for commitments/accounts payable/arrears due end-September. - Fiscal outturns and intra-year margins: - Significant under-execution of discretionary expenditures produced margin under state budget primary spending PC of €5.6 billion (Jan–Jun). - Authorities plan to maintain under-execution such that state spending is limited by €4 billion below earlier program projections by end-2010. - Ordinary revenues fell slightly below target; shortfalls in indirect taxes offset by higher non-tax revenues from tax administration efforts. - Known contingencies: - Items not reflected in cash-based fiscal PCs (called debt guarantees, etc.) expected to reach €1.5 billion as public enterprises face rollover difficulties. - New government guarantee package for bank liquidity support: €25 billion added to contingent liabilities. ### Public financial management and tax administration - New Fiscal Management Law passed (end-July); implementation started: - Introduces annual rolling three-year fiscal and budgetary strategy for consolidated general government; top-down budgeting; commitment controls; contingency reserves; strengthened transparency and a parliamentary budget office. - Many elements effective for preparation of the 2011 budget. - Commitment registries and cash-flow projections: commitment registries structural benchmark by end-September. - Tax administration reform prioritized; with FAD TA assistance five specialized taskforces to be established by September on: implementing new tax legislation; improving audits; boosting arrears collection; collecting large taxpayer payments; improving tax compliance (including presumptive taxation) and service. - Health sector measures to limit spending: - Procurement changes to reduce pharmaceutical spending by 20 percent (starting September). - Enforce/increase copayments; profiling/benchmarking to avoid unnecessary prescriptions. - Local government reform: - Kallikratis law to reduce number of local administrations; authorities committed to limit borrowing and reduce transfers consistent with medium-term fiscal strategy. - State enterprises: - Majority of called guarantees relate to state-owned railroad operations; restructuring expected to significantly reduce fiscal risks. - Financial statements of largest loss-making enterprises to be published on the web (ahead of end-September structural benchmark). ### Pension reform — design, impact, and safeguards - Parliamentary approval: pension overhaul approved in July (Law 3863/2010; adopted July 8, 2010). - Objective: reduce long-run increase in pension costs from 12.5 ppts of GDP (old system) to 2.5‒4.5 ppts of GDP (preliminary staff estimates reflect uncertainty). - Key parameters: - Accrual rates: new law sets accrual rates to 0.80‒1.50 percent a year (old system 2‒3 percent). - Pensionable earnings: move from top 5 years of last 10 to full earnings history. - Indexation capped at inflation. - Retirement age: minimum 60 for all workers by 2015; 40 years contributions for full benefits; early-claim penalty reduces benefits by 6 percent a year for claims before age 65 without 40 years of contributions; anchors indexed to life expectancy. - Arduous professions: coverage to be reduced to less than 10 percent of working population (old list about one-third); revisions in 2011. - Implementation timeline and monitoring: - Actuarial review of main pension funds: complete by end-December 2010. - Expanded actuarial review of largest supplementary funds: end-March 2011. - Any further parameter adjustments after EU peer review: end-June 2011. - Supplementary/welfare pensions review in 2011 aiming for reform by end-March 2012. - Safeguard clause: Ministerial Decision can adjust parameters if periodic actuarial evaluations show reform falls short of objective. ### Financial sector measures, FSF, and state banks - Banking liquidity/support: - Repo-eligible assets boosted through government guarantees of bank bonds and ECB government-paper purchases (analysts estimate ECB purchased over €40 billion in Greek government paper). - Authorities committed to legislation enabling €25 billion bank-bond guarantee tranche (prior action for first review). - Financial Stability Fund (FSF): - FSF law enacted July 13, 2010; projected financing €10 billion; anticipated initial tranche disbursed to FSF in September 2010. - FSF powers include investing in viable banks, leading restructurings, appointing board members, and vetoing key bank decisions; governance and reporting arrangements specified. - Banking system condition and supervision: - Consolidated banking system loss driven by higher provisions and trading book revaluation losses. - CEBS stress tests covered >90 percent of assets; all but one bank passed; ATE Bank failed the most severe scenario. - State banks: government holds 77 percent of ATE Bank (7.3 percent system assets) and 33 percent of Hellenic Postbank (4.1 percent system assets); total market share of directly state-controlled banks (excluding NBG) exceeds 11 percent. - Fact finding and due diligence for state-influenced banks to be completed by mid-September; comprehensive strategy for state banking involvement to be defined thereafter. - Supervisory reporting requirements heightened; staffing/recruitment constraints noted given expanded responsibilities (e.g., insurance transfers to BoG). ### Public debt dynamics and sustainability - Public debt (Maastricht, percent of GDP, program): - 2009: 273.5; 2010: 307.5; 2011: 307.5; 2012: 324.6; 2013: 339.4; 2014: 350.0; 2015: 349.5; 2016: 348.7. - Staff baseline: public debt-to-GDP ratio peaks at 144 percent of GDP in 2013 and declines to 111 percent by 2020 (Table A2 baseline series). - Alternative scenarios (selected outcomes by 2020): - Unchanged policy scenario: debt-to-GDP rises to 181 percent by 2020. - Recognition of implicit/contingent liabilities (identified guarantees €25.8 billion and past swaps €5 billion; state-guaranteed ECB liquidity support €55 billion; zero privatization proceeds): debt at 176 percent of GDP by 2020. - Weaker fiscal adjustment (smaller adjustment of 1 percent of GDP per year): debt about 123 percent of GDP by 2020. - Weaker growth (1 ppt lower GDP growth each year): debt around 154 percent of GDP by 2020. - Faster growth (1 ppt higher): debt down to 74 percent of GDP by 2020. - More severe disinflation (3 ppt lower inflation in 2011–2012): debt peaks at 144 percent and declines to 168 by 2020. - Higher interest rate (+200 bps on new debt): public debt 121 percent of GDP by 2020. - Debt structure and rollover risks: - Average remaining maturity of general government debt: 8 years. - More than one third of the debt stock matures in next three years; almost half in next five years. - End-2009: 98.5 percent of total general government debt denominated in Euro; 89 percent fixed rate debt. - External debt-to-GDP ratio remains above 100 percent by end-2015 in projections (Annex 2 baseline net external debt peaks at 104 percent in 2013). - Gross financing requirements (billion euros, program row): 2009: 68.6; 2010: 73.6; 2011: 73.6; 2012: 55.2; 2013: 57.9; 2014: 53.2; 2015: 70.8; 2016: 76.7. ### Program conditionality, monitoring, and reporting commitments - Quantitative performance criteria (selected Jan–Jun 2010 actuals vs targets): - Floor on modified general government primary cash balance: target -5.0; actual -4.3; margin +0.7 (revised to -3.9 in update). - Ceiling on state budget primary spending (variable monitored for PC): target 34.0 (Jan–Jun 2010); actual 28.4; margin +5.6 (billion euros). - Ceiling on new domestic arrears (indicative): target 0.0; actual 1.0; margin -1.0. - Ceiling on stock of debt: target 342.0; actual 316.7; margin +25.3. - Ceiling on new guarantees: target 2.0; actual 0.3; margin +1.7. - TMU modified to increase coverage of fiscal deficit targets to mirror general government deficit on an ESA95 accrual basis from 2011 onwards. - Reporting timetables (Annex 1 excerpts): - Monthly preliminary state budget execution: monthly, 15 days after month-end. - Monthly general government cash data (other entities): monthly, 30 days after month-end. - Weekly government cash position: weekly on Friday, reporting previous Thursday. - Bank of Greece: weekly assets/liabilities next working day; banking system aggregate monthly, 30 days after month-end. - Monitoring and safeguards: - First safeguards assessment of Bank of Greece finalized August 16, 2010; identified strong framework and recommended enhancements in reporting and audit mechanisms. - MoU signed between Minister of Finance and BoG Governor regarding management and use of Fund disbursements. ### Structural reform priorities and sequencing (actions for reviews) - Priorities: restore fiscal sustainability, safeguard financial stability, boost competitiveness to revive growth and employment. - Actions for second review (to be completed by end Q3-2010) include: - Rigorously implement 2010 budget; 2011 budget to include consolidation measures amounting to at least 3.2 percent of GDP (4.3 percent if carryovers included). - Specific revenue and expenditure measures listed (e.g., replace only 20 percent of retiring employees; reduce intermediate consumption by at least EUR 300 million; phase in green tax yielding at least EUR 300 million; broaden VAT base yielding at least EUR 1000 million; licensing of gaming to yield at least EUR 500 million in sales and EUR 200 million in annual royalties; expand real estate tax yield at least EUR 400 million; presumptive taxation yield at least EUR 400 million). - Tax administration legislation and five taskforces; GAO reform; publication of financials of largest loss-making public enterprises. - Legislation enabling €25 billion guarantee tranche for bank bonds (prior action). - Actions for third and subsequent reviews (Q4-2010 onward): strengthen fiscal framework (rolling three-year ceilings), complete actuarial work and pension projections (NAA to produce interim long-term projections by 1 December 2010), privatization plan to raise at least EUR 1 billion per year (2011–13), local government Kallikratis implementation and savings targets (EUR 500 million per year 2011–13), full operationalization of GEMI and Services Directive implementation, energy sector liberalization plans, public procurement reforms, and targets for Structural and Cohesion Funds absorption. - Multi-review sequencing includes detailed sectoral, administrative, and legislative benchmarks up through end-2013 (annexed action schedules and targets preserved in program documentation). ### Key program risks and staff priorities - Risks: - Fiscal slippage through accrual vs cash deviations and weak sub-national controls; contingent liabilities (calls on guarantees, bank support) could raise financing needs. - Financial sector pressures from collateral valuation changes and deposit outflows; restricted wholesale market access. - Growth and external adjustment: weaker-than-anticipated external adjustment and tourism receipts. - Staff priorities: - Strengthen tax compliance and administration (taskforces, presumptive taxation, audits for high-wealth individuals). - Improve expenditure control at sub-national levels; implement commitment registers and tighter commitment controls. - Continue Financial Stability Fund operationalization and bank recapitalization/restructuring readiness. - Advance liberalization and competition reforms (closed professions, road freight, services directive) to restore competitiveness and support early supply response. *IMF Country Report: Executive Summary (content unit _cr10286 - EXECUTIVE SUMMARY).* ### EXECUTIVE SUMMARY ### _cr10286 - EXECUTIVE SUMMARY ### Overall assessment - Staff’s overall assessment is that the program has made a strong start. End-June quantitative performance criteria have been met, led by forceful implementation of the fiscal program, and major reforms are ahead of schedule. However, important challenges and risks remain. ### Stand-by Arrangement - On May 9, 2010 the Executive Board approved a three-year Stand-By Arrangement (SBA) for Greece under the Emergency Financing Mechanism (EFM) in the amount of SDR 26.4 billion (3,212 percent of quota). - The first purchase was SDR4.8 billion (€5.5 billion) upon SBA approval. - The euro-zone partner countries committed €80 billion, and made a first disbursement of €14.5 billion. - The second disbursement, subject to the completion of this review, amounts to SDR 2.16 billion (about €2.5 billion); €6.5 billion will be contributed by the euro area countries. ### Recent economic developments - Growth and labor: - Year-on-year contraction in GDP increased from 2.3 percent in Q1 to 3.5 percent in Q2. - The unemployment rate increased to 11.8 percent (SA) in April. - Prices and wages: - July inflation reached 5.5 percent (year-on-year), attributed to one-off tax effects; at constant taxes, inflation has fallen below the euro-area average for the first time since euro-adoption. - Three-year national collective wage agreement signed in July freezes minimum wages until mid-2011 and gives increases equal to the average euro-area inflation thereafter. - External sector: - The current account is adjusting somewhat slower than expected; stronger domestic demand, higher oil prices, and increased payments for ship orders kept the trade balance high up to April. - Tourism receipts have been adversely affected by strikes and unrest, and by strong price competition from Turkey and Croatia. - Financial sector and banking: - Liquidity in the banking system is tight but adequate, supported by the ECB’s securities market purchase program (SMP) and other measures to boost banks’ repo eligibility. - Purchases of government securities by the ECB have helped support the value of collateral. - NPLs reached 8.2 percent in Q1 (from 7.7 percent in December); preliminary indications are that NPLs continue to edge upward in Q2. - All banks remained above the minimum capital adequacy requirement of 8 percent. - In July, a total of €4.4 billion of three and six-month T-bills were sold, mostly to domestic banks at an average yield of 4.4 percent. - Monetary conditions: - Funding costs have not increased substantially as banks substituted deposits and wholesale funding with cheaper ECB repos. - Banks have started to restrict credit, particularly to households, but there is no evidence of sharply increasing lending rates. ### Program status and implementation - End-June performance criteria were met despite slightly lower revenue. - All structural benchmarks have been implemented (with slight delays in some cases), except: - The benchmark on the completion of the actuarial report was delayed by staffing and data constraints; the final report is now expected for March 2011. - The indicative target on the non-accumulation of domestic arrears was missed, reflecting weak expenditure control at the sub-national level; a monitoring system for general government commitments, accounts payable, and arrears is being developed (end-September structural benchmark), and there is an understanding that arrears should be amortized by year-end (MEFP ¶4). - Fiscal performance: - Significant under-execution of discretionary expenditures resulted in a large margin under the state budget primary spending PC of €5.6 billion. - Ordinary revenues fell slightly below the target as shortfalls in indirect taxes were offset by higher non-tax revenues reflecting tax administration efforts. - State-budget overperformance offset slippages in local government and the social security sector; the general government deficit PC was met, but with a smaller margin. - Known fiscal risks and contingencies: - Items not reflected in cash-based fiscal PCs—such as called debt guarantees—are expected to reach €1.5 billion as public enterprises face difficulties in rolling over maturing liabilities. - The new €25 billion government guarantee package for financial sector liquidity support has been added to contingent liabilities. ### Policy discussions and priorities - Main program objectives reaffirmed: restoring fiscal sustainability, safeguarding financial sector stability, and boosting competitiveness to revive growth and employment. - Key discussion themes: - Consolidating fiscal achievements: limit deviations between cash and accrual outcomes; advance tax administration reform to secure revenues and enhance fairness. - Making financial sector safeguards effective: continued vigilance on liquidity pressures and further policy steps to ensure stability. - Formulating concrete action plans for structural reforms through 2010, in line with the MoU: place increased emphasis on restoring real-economy flexibility and competitiveness to elicit an early supply response. - Macroeconomic framework (LOI ¶2, and Table 3): - Real GDP is still expected to decline 4 percent in 2010 and about 2½ percent in 2011 (unchanged from the original program). - Nominal growth outlook revised upward because of an uptick in prices; inflation is expected to peak with some further tax effects possible in early 2011 before slowing. - External current account deficit for 2010 revised upward to reflect more gradual decline in imports (excluding oil and ship orders) and weaker tourism receipts despite a rebound in shipping revenues. - Public debt-to-GDP ratio now peaks at 144 percent of GDP in 2013 (compared to 149 percent in the May 2010 program projections). - External debt-to-GDP ratio remains above 100 percent of GDP by end-2015 (Annex 2). - Fiscal policy actions and commitments: - Authorities agreed to continue under-executing spending at the state level and to limit spending by €4 billion below earlier program projections in the state budget by end-year, including after provisioning for increased transfers to social security funds to reduce accounts payable in hospitals. - Reasons cited for attainability: slow execution so far in operations and investment spending (about 36 percent of the full-year appropriations was spent by June), revisions to the schedule for military spending (down by €0.9 billion), and scope for further reducing inefficient spending. - Need to address deviations between cash and accrual deficit measures as the program moves into 2011 to avoid undermining market confidence (the EU’s Excessive Deficit Procedure focuses on accrual-based deficits). ### Financial sector measures - Banking sector support and liquidity: - Repo-eligible assets have been boosted through government guarantees of bank bonds and by the ECB’s intervention in the government bond market. - Analysts estimate that the ECB has purchased over €40 billion in Greek government paper. - System-wide results and risks: - Consolidated banking system recorded a loss driven by higher provisions and revaluation losses in the trading book. - Deposit outflows were intermittent; Greek banks have not yet regained access to wholesale markets. ### Structural reforms and implementation status - Major reforms implemented ahead of schedule include: - A major pension reform approved in July. - Substantive labor market reform underway. - Significant budget legislation reform, local government reform, and legislation governing the Financial Stability Fund passed. - Structural benchmarks: - All structural benchmarks required under the program implemented (with slight delays in some cases) except the actuarial report completion (see above). - End-September structural benchmark: monitoring system for general government commitments, accounts payable, and arrears to be in place. ### Mission and staff - Discussions took place on July 26‒August 4 with the Minister of Finance, Governor of the Bank of Greece (BoG), Minister of Labor and Social Security, Minister of Interior, Minister of Economy, Competitiveness and Shipping, Minister of Health, Minister of Infrastructure and Transport, Minister of Defense, and staff in these and other ministries and agencies, and private banks. The mission also met leaders of employees and labor unions and some opposition parties. - Staff comprised P. Thomsen (head), B. Traa, G. Everaert, M. Moreno Badia, E. Perez Ruiz (all EUR); S. Eble and M. Soto (FAD); Y. Sun (SPR); and O. Frecaut and L. Zanforlin (MCM). *IMF Country Report: Executive Summary (content unit _cr10286 - EXECUTIVE SUMMARY).* ### 8. Stronger public financial management and especially tax administration are ### _cr10286 - 8. Stronger public financial management and especially tax administration are ### Public financial management and tax administration - New Fiscal Management Law passed; implementation has started and includes: - Setting up commitment registries (taking inventory of stocks and flows; a structural benchmark by end-September) to improve arrears monitoring and reporting. - Preparing cash flow projections with clear expenditure prioritization to guide release of spending commitments. - Establishing commitment controls that will take time to fully implement; in the interim accounting firms have been placed in state hospitals to improve financial management and spending control. - Tax administration reform prioritized to limit revenue shortfalls and increase fairness: - With FAD TA assistance, by September five specialized taskforces are expected to be put in place (on implementing new tax legislation, improving audits, boosting arrears collection, collecting large taxpayer payments, and improving tax compliance (including using presumptive taxation) and service). - These taskforces will form the basis for designing and implementing an ambitious multi-year anti-tax evasion and compliance agenda (MEFP, ¶7). ### Other reforms to limit budgetary risks - Health sector measures: - Change procurement procedures to reduce pharmaceutical spending by 20 percent (starting September). - Improve profiling and benchmarking for patients and doctors to avoid unnecessary prescriptions. - Enforce and increase copayments for outpatient and diagnostic services to contain health spending. - Local government reform: - Kallikratis law will significantly reduce the number of local administrations, entities, and elected and appointed officials. - Authorities committed to limit borrowing, reduce transfers in line with savings targets, and control local government budgets consistent with the medium-term fiscal strategy. - State enterprises: - Majority of called guarantees relate to state-owned railroad operations; restructuring in this sector will significantly reduce fiscal risks. - Government has published financial statements of the largest loss-making enterprises on the web (ahead of the end-September structural benchmark). ### 2011 budget preparations - Preparations for the 2011 budget in line with the May program have started. - Under the new Fiscal Management Law, preparation will require consolidated budgets for the social security funds, extrabudgetary funds and local governments consistent with program targets, to present to parliament for the first time the state budget and the general government budget position. - Government is reviewing the savings needs for 2011 agreed in May to ensure quality, secure yield, head start implementation, and formulate potential contingency measures. ### Box 1 — Fiscal Management Law: main elements and objectives - Rationale: Weak fiscal institutions, absence of binding spending ceilings, and lack of formal commitment controls contributed to the Greek fiscal deficit bias; fiscal planning focused on the state budget and lacked medium-term context. - The Fiscal Management Law (passed in July; designed with FAD-led TA) overhauls budget preparation, execution, and monitoring to support fiscal consolidation and enshrine fiscal discipline at general government level by: - Introducing an annual rolling three-year fiscal and budgetary strategy for the consolidated general government. - Introducing top-down budgeting with medium-term expenditure ceilings for the state budget. - Introducing commitment controls to ensure spending is in line with budget ceilings. - Requiring supplementary budgets for any overspending. - Establishing contingency reserves for unforeseen events. - Modernizing audits. - Strengthening accountability and transparency including by creating a parliamentary budget office. - Extending budgeting and reporting obligations and commitments to all local governments, social security funds, and other entities. - The law includes principles to support fiscal consolidation after the current three-year program expires by specifying general principles and basic elements for a fiscal rule emphasizing comprehensive coverage, medium-term focus, transparency, and credibility. - Most elements become effective for the preparation of the 2011 budget. ### Pension reform (Box 2): outcomes, priorities, and key parameters - Parliamentary approval: Pension overhaul approved in July. - Estimated fiscal impact: - Preliminary staff estimates indicate the reform would lower the projected increase in pension spending in 2010‒2050 from 12.5 ppts of GDP to 2.5‒4.5 ppts of GDP (uncertainty reflects pending adjustments to supplementary pension plans). - Implementation priorities and deadlines: - Quantifying impact: An actuarial review of the new pension system for the main pension funds is underway, to be completed by end-December 2010. - Expansion: Actuarial review will be expanded to include the largest supplementary funds by end-March 2011. - Parameter adjustments: Any further adjustments to main parameters, after EU peer review, will be completed by end-June 2011. - Supplementary and welfare pensions: Spending for these plans is about 1½ percent of GDP; many are poorly funded and likely to face difficulties within the next 5‒10 years. Authorities intend a full review in 2011 with the aim to reform the system by end-March 2012. - Key reform elements: - Accrual rates/generosity: Old system accruals 2‒3 percent a year; new law sets accrual rates to 0.80‒1.50 percent a year depending on years of service. - Calculation of pensionable earnings: Move from top 5 years of last 10 to full earnings history. - Indexation of pensions: Cap indexation at inflation (old system tended to adjust with wage growth). - Retirement age/years of contributions: Minimum retirement age set at 60 for all workers (men and women) by 2015; requires 40 years of contributions for full benefits; reduces benefits by 6 percent a year for those who claim before age 65 without 40 years of contributions; anchors (60 and 65) indexed to life expectancy going forward. - Arduous professions/disability verification: Revision in 2011 to restrict arduous classification to less than 10 percent of the working population (old list included about a third); establishment of disability verification centers, a register of individuals with disabilities, and random checks. - Simplification: Equalize benefit formulas and retirement ages across all funds; six pension funds remain (IKA; OAEE; OGA; ETAA; ETAP-MME; BoG fund); separation of pension funds from health insurance component. - Compliance: All transactions to social security bodies to be made through the banking system; establish a pension audit system using AMKA; set penalties for contribution evasion and conditions for repayment of overdue contributions. - Monitoring: From 2011, actuarial analysis required every two years; Minister of Labor to brief parliament on finances of the social security system every six months. - Safeguard clause: - Objective is to reduce long-run increase in pension costs from 12½ ppts of GDP by 2060 under the old system to 2½ ppts of GDP under the new system. - If periodic actuarial evaluations show the reform falls short, a Ministerial Decision can adjust parameters to achieve the final objective. ### Cash management and market operations - Budget liquidity remains tight despite good fiscal performance. - Called guarantees and other stock-flow adjustments have raised cash needs by at least €1.5 billion. - To smooth maturity profile and improve the T-bill market, authorities plan to start monthly T-bill auctions beginning in September (from quarterly placements). - Authorities have no plans to return to the T-bond market any time soon. ### Financial sector: liquidity, guarantees, and stability frameworks - Liquidity challenge: - Changes by the ECB in collateral valuation over the summer led to a decline in collateral values submitted by Greek credit institutions. - Amendments in the Eurosystem’s risk control framework announced on 28 July 2010 (entering into force on 1 January 2011) could further reduce after-haircut value of some collateral assets. - Some deposit losses continue; banks have increased interest rates to slow outflows. - Government measures: - Legislation to put in place a new tranche of guarantees for bank bonds for a total amount of €25 billion (a prior action for the first review) to preserve lending capacity and withstand market turbulence. - Authorities view continuation of the ECB SMP program as a desirable backstop. - Banks are selling non-core assets, reducing cost base, opening covered bond programs and restructuring ABSs to generate additional eligible collateral. - Financial Stability Fund (FSF): - FSF formally approved; Parliament enacted the Financial Stability Fund Law on July 13. - The FSF can invest in viable banking institutions where capital is under pressure and private solutions are not immediately found; it will lead restructurings where needed. - Projected €10 billion for FSF financing remains adequate. - Anticipated initial tranche will be disbursed to the FSF in September 2010. - Steps needed for full operation by September are on course, including appointment of board members, hiring staff, and premises. - Banking supervision: - Reporting requirements heightened and reporting lags reduced. - Hiring freeze has limited increases in on-site inspection and off-site review staffing; recruitment progress is urgent. - Newly approved law on insurance transfers supervisory oversight of insurance activities to the BoG, increasing supervisory workload. - Authorities considering more flexible recruitment processes without compromising quality or increasing net staffing. ### State-controlled banking entities (Box 3) - State ownership and market shares (as of end-2009 unless otherwise noted): - Government holds 77 percent of the capital of ATE Bank (Agricultural Bank of Greece), which has a 7.3 percent share of the system’s assets. - Government is controlling shareholder (33 percent of capital) of the Hellenic Postbank, which has a 4.1 percent share of the system’s assets. - Through participations, government controls or influences two smaller banks. - Consignment Deposits and Loans Fund, a non-bank government institution with €6.6 billion of assets, competes with banks for deposits and extends loans to civil servants and public entities. - Through pension fund share ownership the state participates indirectly in National Bank of Greece (NBG) and normally appoints the NBG CEO. - Total market share of banks in which the state has a direct controlling share (excluding NBG) exceeds 11 percent. - Key challenges: - ATE Bank has a history of non-repaid loans and recurrent recapitalization; it failed the most severe scenario in the July 2010 CEBS stress-test. - Consignment Fund lacks appropriate controls and mechanisms to manage liquidity and interest rate risks; does not have access to ECB facilities or interbank market and tends to keep deposit rates high. - Government strategy: - Fact finding by independent consultants to be completed by mid-September; strategic review of the future of the Greek banking system and state involvement. - Preliminary targeted due diligence for banks with material state control or influence to assess economic value. - A reform program covering all government interests in banking activities will be defined after fact finding to preserve financial stability and improve efficiency; may include possible sale of significant government interests in an open and transparent process. Program approval date to be discussed at the time of the second review. - ATE and CEBS stress tests: - Government reaffirmed full support to state-owned ATE which did not pass the stress tests under the most stringent scenario. - Priority to implement a comprehensive restructuring plan (by end-September) as required for institutions receiving significant state aid. - Pending due diligence, the bank instructed to implement interim restructuring measures under BoG oversight to contain costs and risks. ### Cross-border supervision and insolvency framework - BoG maintains close coordination with home and host country supervisors with intensified communications in Southeastern Europe and participation in colleges of supervisors. - Personal insolvency law adopted after ECB-recommended amendments to adequately protect creditor rights. - Special emergency corporate insolvency framework facilitating debt restructuring has expired and was not extended, welcomed by the banking industry. ### Labor market reform (Box 4) - Legislative changes introduced in July ahead of schedule to reduce labor-market distortions and increase firms’ adjustment capacity; further measures on collective bargaining to be taken by end-September to improve the link between wages and productivity. - Key measures enacted: - Minimum wage: Sub-minimum wage for newly-hired employees younger than 25 — gross wage for employers will be 84 percent of the wage level established in the National General Collective Labor Agreements (NGCLA). Employees’ take-home pay remains unchanged as the Manpower Services Organization will cover their social security contributions. - Apprenticeship contracts: One-year apprenticeship contracts for workers between 15 and 18 years old paying 70 percent of the minimum wage. - Employment protection legislation: Severance costs for white-collar workers reduced through shortening notification period (e.g., for an employee working 28 years or more, notification reduced from 24 months to 6 months). The gap in severance costs between white-collar and blue-collar workers is cut by 20 percent. - Collective dismissals: For firms with more than 600 employees, the maximum number of lay-offs per month increased from 12 up to 30 people. - Institutional changes to be adopted by end-September 2010 to reform collective bargaining and arbitration: - Collective bargaining: Wage levels in NGCLA no longer a minimum requirement for occupational, sectoral or firm-level agreements; abolish favourability principle; firm-level agreements to prevail; eliminate automatic extension of sectoral or occupational agreements to non-represented parties. - Arbitration: Amend arbitration so both employees and employers can resort to arbitration if mediation fails; new system to operate with transparent objective criteria and an independent committee of arbitrators with no government representatives. *Source: IMF staff report content provided in the supplied PDF chapter.* ### 21. Efforts are underway to increase competition and remove restrictions, including ### 21. Efforts are underway to increase competition and remove restrictions, including in the transport sector ### Reforms to increase competition and ease entry - Business entry - Fully operationalize the general electronic commercial registry (GEMI), adequately equip one-stop shops, and eliminate unnecessary fees (by end-December). - Adopt legislation to simplify and accelerate licensing authorization (by end-December). - Hellenic Competition Committee (HCC) - Amend the Greek Competition Act to strengthen HCC independence through Parliamentary approval of the HCC president and its members (by end-December). - Enhance HCC effectiveness by enabling case prioritization, policy advocacy on its own initiative, and strengthening the appeals system. - Services and closed professions - Pursue ambitious implementation of the Services Directive. - Conduct comprehensive review of up to 160 technical occupations under the General Secretariat for Industry, emphasizing removal of licensing obstacles and entry barriers; draft framework law should be ready by October 2010. - Liberalize entry in the legal, pharmacy, notary, architecture, engineering, and auditing professions by reducing licensing requirements, geographic restrictions and regulated tariffs (by end-December). - Transportation - Ratify draft law on revocation of cabotage to allow non-EU flagged vessels to perform cruises departing/arriving at Greek ports (shortly). - Approve legislation to remove restrictions and liberalize prices in road freight (by end-September). - Tourism and retail - Commission report analyzing obstacles to development of tourism and retail sectors and follow up with a time-bound action plan. - Create an electronic price observatory within the General Secretariat of Commerce to regularly evaluate price formation practices and refer possible anti-competitive practices to the HCC. ### Box 5 — Road Freight Reform: main elements and expected effects - Context: Freight transport regulated since the 1970s; government set minimum tariffs and granted licenses. Distortions identified include: - High-price, low-quality transportation services encouraging vertical integration by firms. - Large private rents accruing to incumbents. - Lack of incentives for investment, poor technological innovation and productivity. - Excessive fragmentation and low utilization of economies of scale; no new licenses sold since the 1970s. - Reform timing: Far-reaching liberalization of road haulage scheduled to be passed by end-September; expected to generate substantial efficiency gains. - Main elements: - Elimination of quantitative licensing restrictions: granting of licenses automatic upon meeting objective criteria (certificates of professional qualifications, tax clearance and social security certificates, and criminal record copies). - Price of the licenses during the transition period: - Transition period of 2.5 years. - New entrants required to pay an entry fee equal to the “goodwill” of existing licenses, acknowledged by the government as “an element of the right of property”. - The value of the entry fee will decrease at the rate of 30 percent in 2011, and 35 percent in 2012 and 2013. - After 2013 the fee shouldered by the new entrants will exclusively cover administrative costs. - Freedom to negotiate cargo fares: administratively set prices for general cargo abolished; administration can still set maximum prices for oil fuel. ### Privatization, state-owned enterprises (SOEs), and private investment (Box 6) - Rationale: Opening private investment, including FDI, can generate short-term growth benefits without burdening the budget. - Structural funds and state aid - Gradual cut in use of state aid to sustain inefficient companies. - Adopt legislation to tackle delays of public works; task force established to overcome implementation bottlenecks and ensure timely delivery of high-quality programs. - Network industries - Discuss enabling law to restructure the railway sector in parliament by end-September. - Approve a business plan with time-bound actions, including cost-recovery tariffs, reduced payroll expenses, and closure of unprofitable lines. - Enable effective liberalization of the wholesale electricity market and rationalize tariffs while protecting vulnerable groups. - Privatization program - A list of privatization projects has been identified and is awaiting a fully elaborated plan to be prepared before end-December. - The announced privatization program covers telecom, utility, transportation, real estate, and gaming sectors; mostly via concession agreements, with outright sales and IPOs playing a smaller role. - For 2011, a preliminary list of privatization projects (mainly in the gaming industry and through extension of concessions) could yield savings exceeding €1 billion. - Elaboration of a full-fledged privatization plan is expected by end-December (structural benchmark). - SOE fiscal risks and railroad reform - The ten largest loss-making SOEs had combined losses of around 0.7 percent of GDP in 2009. - Losses concentrated in the railway sector (60 percent), the Athens public transport system (25 percent), and the defense sector (11 percent). - Reform of TRAINOSE: draft bill for restructuring being prepared, involving unbundling operator and infrastructure manager, limiting subsidies against assumption of debts, and reducing costs through higher tariffs, suspension of loss-making routes, and lower personnel costs. ### Data quality, fiscal reporting, and statistical governance - Fiscal reporting - Below-the-line fiscal reporting for non-state entities ready to start in September; questionnaire launched to collect above-the-line fiscal outcomes. - Authorities working to strengthen response rate and reporting quality to switch to above-the-line reporting by year's end. - Reconciliation for first quarter below-the-line cash data and ESA95 survey accrual data revealed limited differences for social security funds; challenges remain in local government and extra-budgetary fund reporting. - ELSTAT - President and other board members of the newly independent Statistical Office (ELSTAT) have been appointed. - MoUs between ELSTAT and main data providers (GAO, BoG, Ministry of Interior, Ministry of Labor and Social Security, and Ministry of Health) are close to completion; preparatory step for regulations of statistical obligations (benchmark for end-December). - Major work underway to update registry of public agencies, enterprises, and organizations to improve public sector data coverage. ### Program modalities, safeguards assessment, and staff appraisal - Program modalities and TMU - Letter of Intent, Memorandum of Economic and Financial Policies and annexed tables, and the Technical Memorandum of Understanding (TMU) describe progress; performance criteria and structural benchmarks remain as specified in May. - TMU modified to improve clarity in some definitions and increase coverage of program’s fiscal deficit targets to mirror general government deficit on an ESA95 accrual basis from 2011 onwards. - No changes proposed to level of access or schedule of purchases. - Bank of Greece safeguards assessment - First safeguards assessment of the Bank of Greece (BoG) with respect to SBA approved in May 2010 was finalized on August 16, 2010. - Assessment found a well established safeguards framework; BoG adopted ECB guidelines and good practices, financial statements independently audited and published. - BoG initiated reforms to strengthen internal audit; independent audit committee being established. - Assessment recommended measures to further enhance financial reporting and audit mechanisms. - Staff appraisal — fiscal performance and risks - End-June quantitative performance criteria have been met, led by forceful fiscal implementation; major reforms ahead of schedule. - Staff projects continued under-execution of discretionary state budget spending, by €4 billion at year-end, is necessary to ensure end-December targets are met; staff agrees this is possible and additional fiscal measures are not warranted at this juncture. - Emphasis that under-execution is a stop-gap until fundamental fiscal reforms (improved expenditure control and tax administration) take hold. - Program credibility hinges critically on improving tax compliance; measures include presumptive tax mechanism and task forces pursuing high-income individuals. - Improving expenditure controls at sub-national levels is important; new “golden” rule limits municipalities’ capital expenditure but could still allow total expenditure rise; government should seek agreement with new municipal governments. - Strengthening financial control and procurement in the health sector must continue. - Planned transfer of SOE debt to the budget and requirement that subsidies be included in the state budget will improve transparency but must be accompanied by reforms for financial soundness. - Structural reform priorities - Priority should be liberalization of closed professions, deregulation, and reduction in barriers to development of tourism and retail to start an early recovery in growth, competitiveness, and employment. - Consider strengthening the privatization program, which currently plays a somewhat timid role. - Political effort should focus on areas where resistance from vested interests is likely; road haulage reform is cited as an important signal of determination. - Banking system liquidity and capital - Liquidity: ECB’s Security Market Purchase Program has contributed to safeguarding banking system liquidity by stabilizing government bond prices; continuation desirable while sovereign bond market malfunctioning persists. - Assuming program remains in place and government guaranteeing of €25 billion of bank bonds increases repo-eligible collateral, staff believes banks will have sufficient liquidity in coming months. - Capital: CEBS stress test confirmed Greek banking system relatively well-capitalized. - With the FSF now in place, authorities have back-stop to deal with capital shortfalls; staff believes the €10 billion allocated by the authorities for financing the FSF remains adequate. - State banks: due diligence underway; formulation of a comprehensive strategy for state banks must be a key objective, starting with a plan for ATE Bank—the single Greek bank which failed the stress test. *Source: _cr10286 - 21. Efforts are underway to increase competition and remove restrictions, including* ### 34. Overall, the program is off to an impressive start. This is fully in line with the high ### Overall, the program is off to an impressive start. This is fully in line with the high ### Program assessment and political context - "Overall, the program is off to an impressive start." - Staff note: "This is fully in line with the high expectations expressed by the international community when agreeing to the extraordinary financial support package." - Political shortcoming: "A disappointment so far has been that, at this defining moment for Greece, the economic reforms have not had broader support from other political parties." - Outlook: "While most of the difficult reforms still lie ahead, developments during this early phase of the program augur well for the government’s determination to press ahead." - Staff recommendation: "Staff fully supports the conclusion of the review." ### Macroeconomic and output indicators (selected) - Real GDP growth (program projections, percent change): 2009: -2.0; 2010: -4.0; 2011: -4.0; 2012: -2.6; 2013: 1.1; 2014: 2.1; 2015: 2.1; 2016: 2.7. - Output gap (percent of potential output): 2009: 4.0; 2010: -1.1; 2011: -1.1; 2012: -4.7; 2013: -4.7; 2014: -4.0; 2015: -3.7; 2016: -3.1. - Total domestic demand (percent change): 2009: -2.4; 2010: -7.1; 2011: -6.5; 2012: -5.3; 2013: 0.2; 2014: 1.7; 2015: 1.8; 2016: 2.1. - Private consumption (percent change): 2009: -1.8; 2010: -4.0; 2011: -3.0; 2012: -3.9; 2013: 0.7; 2014: 2.8; 2015: 2.5; 2016: 2.5. - Unemployment rate (percent): 2009: 9.4; 2010: 11.8; 2011: 11.8; 2012: 14.6; 2013: 14.8; 2014: 14.3; 2015: 14.1; 2016: 13.4. - Consumer prices (HICP), period average: 2009: 1.3; 2010: 1.9; 2011: 4.6; 2012: 2.2; 2013: 0.5; 2014: 0.7; 2015: 1.0; 2016: 1.0. ### Balance of payments and external sector - Current account (percent of GDP, program basis): 2009: -11.2; 2010: -8.4; 2011: -10.8; 2012: -7.8; 2013: -6.9; 2014: -6.0; 2015: -5.1; 2016: -4.0. - Trade balance (percent of GDP): 2009: -7.6; 2010: -3.5; 2011: -7.1; 2012: -3.9; 2013: -3.0; 2014: -2.2; 2015: -1.4; 2016: -0.5. - Exports of goods and services (index in Table 4, program numbers): 2009: 17.8; 2010: 21.1; 2011: 19.0; 2012: 21.0; 2013: 22.3; 2014: 23.4; 2015: 24.5; 2016: 25.4. - Imports of goods and services (index in Table 4, program numbers): 2009: 25.4; 2010: 24.6; 2011: 26.2; 2012: 24.9; 2013: 25.3; 2014: 25.6; 2015: 25.8; 2016: 25.9. ### Financial sector and markets (selected indicators) - Sovereign spreads and CDS: government 2-year and 10-year bond spreads and 5-year CDS are indicated as markedly higher through 2010 (charts presented; specific series labels preserved). - Stock market: Selected indices (Average 2007=100) show Greece underperforming U.S. S&P and Germany DAX between Jan-07 and Jun-10. - Household credit (year-on-year percent change): slowdown observed (chart series Total / Housing / Consumer credit). - Corporate credit (year-on-year percent change): slowdown observed. - Real interest rates on new loans with charges (percent): series for Housing and Consumer show a fall (chart series). - Banks' market access and deposits: "Market access and deposits have declined." - Banks issued some debt in 2010 for collateral use at the ECB. ### Public finances: program tables (general government, percent of GDP and euro billions) - Program revenue (percent of GDP, program row): 2009: 87.5; 2010: 93.5; 2011: 93.3; 2012: 91.3; 2013: 90.3; 2014: 92.4; 2015: 91.7; 2016: 93.0. - Taxes on production and imports (percent of GDP): 2009: 26.4; 2010: 32.0; 2011: 31.3; 2012: 31.6; 2013: 30.6; 2014: 31.7; 2015: 33.3; 2016: 34.5. - Primary expenditure (percent of GDP, program): 2009: 107.9; 2010: 99.1; 2011: 98.6; 2012: 102.3; 2013: 102.7; 2014: 104.7; 2015: 102.0; 2016: 102.6. - Primary balance (percent of GDP, program): 2009: -20.4; 2010: -5.6; 2011: -5.3; 2012: -1.8; 2013: 2.4; 2014: 7.4; 2015: 14.2; 2016: 15.2. - Interest payments (percent of GDP, program): 2009: 11.9; 2010: 13.0; 2011: 13.3; 2012: 15.2; 2013: 17.1; 2014: 18.9; 2015: 20.4; 2016: 20.3. - Overall balance (percent of GDP, program): 2009: -32.3; 2010: -18.6; 2011: -18.6; 2012: -17.0; 2013: -14.7; 2014: -11.5; 2015: -6.2; 2016: -5.1. - Gross debt (Maastricht, percent of GDP, program): 2009: 273.5; 2010: 307.5; 2011: 307.5; 2012: 324.6; 2013: 339.4; 2014: 350.0; 2015: 349.5; 2016: 348.7. ### Public sector financing requirements and sources (Table 3, selected) - Gross borrowing need (billion euros, program row): 2009: 68.6; 2010: 73.6; 2011: 73.6; 2012: 55.2; 2013: 57.9; 2014: 53.2; 2015: 70.8; 2016: 76.7. - Exceptional creditors (billion euros, program row): 2009: 6.1; 2010: 28.6; 2011: 38.9. - EU component (program row): 2009: 4.5; 2010: 20.8; 2011: 28.3. - IMF component (program row): 2009: 1.7; 2010: 7.8; 2011: 10.6. - Net market access (billion euros, program row): 2009: 32.0; 2010: -4.0; 2011: -4.0; 2012: -22.9; 2013: -9.2; 2014: 8.8; 2015: 31.9; 2016: 38.0. - Rollover rates of existing debt (percent): 2009: 89.4; 2010: 89.4; 2011: 35.0; 2012: 77.4; 2013: 125.7; 2014: 178.6; 2015: 203.5. ### External financing, gross requirements and sources (Tables 4 and 5, selected) - Gross financing requirements (billion euros): 2008: 122.9; 2009: 167.1; 2010 (prog): 186.1; 2011 (prog): 176.1; 2012 (proj): 180.1; 2013 (proj): 164.6; 2014 (proj): 167.2; 2015 (proj): 198.8; 2016 (proj): 220.3. - Current account deficit (billion euros, Table 5): 2008: 34.8; 2009: 26.6; 2010 (prog): 19.3; 2011 (proj): 25.6; 2012 (proj): 18.0; 2013 (proj): 16.2; 2014 (proj): 14.5; 2015 (proj): 12.8; 2016 (proj): 10.5. - Assets drawdown (billion euros, Table 5): 2008: -30.1; 2009: -26.1; 2010: -7.2; 2011: -7.2; 2012: 7.8; 2013: -12.2; 2014: -17.2; 2015: -17.2; 2016: -12.2. - New borrowing and debt rollover (billion euros): 2008: 148.0; 2009: 191.8; 2010: 151.9; 2011: 142.0; 2012: 128.7; 2013: 147.2; 2014: 169.9; 2015: 208.6; 2016: 224.7. - Program financing (billion euros, Table 5 memorandum): 2010: 38.0; 2011: 38.0; 2012: 40.0; 2013: 24.0; 2014: 8.0. ### IMF access, phasing, and Fund credit indicators (Table 7 and Table 8) - Stand-By Arrangement (SBA) Board approval date: May 10, 2010; SBA availability in millions of SDRs: 4,805.9; in percent of quota: 583.9. - First Review (Aug 30, 2010): observance of end-June 2010 performance criteria; Purchase: 2,162.7 million SDRs; 262.8 percent of quota. - Subsequent reviews and purchases through May 30, 2013 (twelfth review) result in total purchases: 26,432.9 million SDRs; 3,211.8 percent of quota. - Indicators of Fund credit (Table 8, projections): Disbursements (in millions of euros) by year: 2010: 10,773; 2011: 11,340; 2012: 6,804; 2013: 2,268. - Projected outstanding stock (in millions of euros, Table 8): 2010: 10,773; 2011: 22,112; 2012: 28,916; 2013: 29,448; 2014: 21,333; 2015: 10,312; 2016: 3,189; 2017: 354. - Debt service to the Fund (Table 8): projected totals and timing indicated across 2010–18 (table entries preserved). ### Banking sector financial soundness indicators (Table 6 and related tables) - Regulatory capital to risk-weighted assets (percent): 2009: 11.7; 2010: 11.7. - Regulatory Tier I capital to risk-weighted assets (percent): 2009: 10.6; 2010: 10.6. - Nonperforming loans net of provisions to capital (percent): 2009: 38.2; 2010: 40.6. - Nonperforming loans to total gross loans (percent): 2009: 7.7; 2010: 8.2. - Sectoral distribution of loans (percent of total loans, selected series for 2010): Consumer credit: 13.0; Lending for house purchase: 35.5; Non-financial corporations: 48.0. - Return on assets (after taxes): 2009: -0.1; 2010: -0.6. - Return on equity (after taxes): 2009: -1.5; 2010: -8.7. - Liquid assets to total assets (percent): 2009: 45.2; 2010: 45.9. - Liquid assets to short-term liabilities (percent): 2009: 56.9; 2010: 57.4. ### Monetary and banking aggregates (Table 9 and Table 5/9 snapshots) - Monetary survey (assets and liabilities, billion euros): Assets 2010 (prog): 410.3; Credit to the private sector 2010 (prog): 222.6; Credit to the government 2010 (prog): 80.1. - Total deposits (billion euros): 2010 (prog): 220.0. - Percent changes and ratios: Total deposits growth presented as series (e.g., 2009: 7.7%; 2010: 9.4%; later years include negative changes in projections). *Source: IMF staff material contained in the content unit _cr10286 - 34. (extracted tables and figures as presented).* ### 1. Direct taxes21.49.08.915.315.021.721.4 ### _cr10286 - 1. Direct taxes21.49.08.915.315.021.721.4 ### Revenue composition (selected items, percent of GDP) - 1. Direct taxes: 21.4, 9.4, 9.0, 8.9, 15.3, 15.0, 21.7, 21.4 - Income taxes: 16.6, 6.3, 6.0, 11.5, 10.8, 16.6, 15.6 - PIT: 10.9, 4.5, 4.3, 7.7, 7.5, 10.9, 10.7 - CIT: 3.4, 1.0, 1.1, 2.2, 2.0, 3.5, 3.0 - Other: 2.3, 0.8, 0.6, 1.5, 1.3, 2.2, 1.9 - Property taxes: 0.5, 0.3, 0.1, 0.7, 0.4, 1.0, 0.8 - Tax arrears collection (direct): 2.4, 1.3, 1.2, 1.7, 1.6, 2.2, 2.2 - Other direct taxes: 1.9, 1.2, 1.6, 1.6, 2.2, 2.0, 2.8 - 2. Indirect taxes: 28.3, 15.6, 14.8, 24.4, 23.4, 34.1, 32.9 - Transaction taxes: 17.9, 9.4, 8.9, 14.9, 14.3, 20.2, 19.5 - VAT: 16.6, 8.7, 8.4, 13.6, 13.4, 18.5, 18.4 - other: 1.3, 0.8, 0.5, 1.3, 0.9, 1.7, 1.2 - Consumption taxes: 9.6, 5.8, 5.5, 8.8, 8.5, 12.9, 12.5 - Tax arrears collections (indirect): 0.4, 0.2, 0.2, 0.3, 0.3, 0.5, 0.4 - Other indirect taxes: 0.4, 0.2, 0.2, 0.3, 0.3, 0.4, 0.4 - 3. Transfers EU: 0.3, 0.1, 0.1, 0.2, 0.1, 0.4, 0.4 - 4. Nontax revenue: 2.3, 1.1, 1.4, 1.7, 2.0, 2.4, 2.7 - B. One-off revenue: 1.1, 0.7, 0.9, 1.0, 1.2, 1.4, 1.5 - C. Tax Refunds (-): 5.0, 2.4, 2.3, 3.5, 3.6, 4.9, 5.1 ### Expenditure and spending aggregates (percent of GDP unless noted) - Public investment budget: 2.0, 0.9, 0.4, 2.1, 0.5, 3.3, 3.0 - A. EU flows: 1.9, 0.8, 0.3, 2.0, 0.4, 3.1, 2.9 - B. Own revenues: 0.2, 0.1, 0.1, 0.1, 0.1, 0.1, 0.1 - Total expenditure 1/ 2/: 83.6, 39.8, 34.1, 60.5, 56.4, 79.8, 76.4 - Total ordinary spending: 70.3, 34.2, 30.2, 51.6, 49.6, 67.9, 66.1 - Total ordinary primary spending: 58.0, 26.8, 24.5, 40.0, 37.7, 54.9, 52.7 Major ordinary primary spending categories: - A. Remuneration and pensions: 25.2, 10.8, 11.3, 16.5, 16.9, 22.5, 22.9 - B. Insurance and Healthcare: 17.6, 8.7, 7.4, 12.8, 11.5, 18.1, 17.0 - C. Operating and other expenditure and returned resources: 14.5, 7.0, 5.4, 10.2, 8.7, 13.6, 12.2 - D. Payments in exchange of claims of insurance fund 3/: 0.8, 0.4, 0.4, 0.5, 0.5, 0.7, 0.6 Other expenditures: - Interest expenditure: 12.3, 7.4, 5.7, 11.7, 11.9, 13.0, 13.4 - Transfers to hospitals for the settlement of past debt 4/: 1.5, 0.0, 0.0, 0.0, 0.2, 0.0, 0.2 - Investment spending: 9.6, 4.2, 3.7, 6.8, 5.6, 9.2, 8.2 - Spending on military procurement: 2.2, 1.4, 0.2, 2.0, 1.0, 2.7, 1.8 State Budget primary spending 1/ 2/ (variable monitored for PC): 71.3, 32.4, 28.4, 48.8, 44.3, 66.8, 62.7 ### Fiscal balances and cash measures (percent of GDP) - Balance state budget 1/ 2/: -33.1, -14.7, -9.9, -19.3, -17.7, -21.4, -19.6 - II. Balance local governments 1/ 5/: 0.0, 0.9, 0.2, 1.0, 0.2, 0.1, 0.0 - III. Balance social security funds 1/ 5/: 1.9, 1.9, -0.2, 3.1, 1.6, 2.6, 2.3 - IV. Modified general government cash balance: -31.2, -12.0, -10.0, -15.2, -15.9, -18.7, -17.2 - Modified general government primary cash balance (variable monitored for PC): -18.9, -4.6, -4.3, -3.5, -3.8, -5.7, -3.6 - V. Adjustments 6/: -1.1, ............, 0.1, ... - VI. General government balance (ESA 95): -32.3, ............, -18.6, ... Memorandum: - Floor on the modified general government primary cash balance 6/: ..., -5.0, -4.3, -4.0, ..., -5.7, ... - Ceiling on state budget primary spending 7/: ..., 342850, ..., 67, ... Program monitoring dates included: Jun-10, Sep-10, Dec-10 (table labeled cumulative, in billion of Euro). ### Public Debt Sustainability — key findings and projections - Sharp increase of general government debt to 115 percent of GDP in 2009 attributed to: (i) lower growth, (ii) higher real interest rates, and (iii) an elevated fiscal deficit. - Baseline scenario: - Public debt peaks at 144 percent of GDP in 2013 and declines to 111 percent by 2020. - Assumes primary balance improves from -8.6 percent of GDP in 2009 to nearly 6 percent of GDP in 2014 and beyond. - Output contracts in 2010–11, reaches medium-term target of 2¾ percent after 2016. - Includes in 2010 a €10 billion disbursement for the Financial Stability Fund (FSF) and €5.5 billion for arrears clearance. - After 2011, privatization proceeds of €1 billion every year are included. - Unchanged policy scenario: public debt-to-GDP ratio rises to 181 percent by 2020 (reflecting fiscal deficit ~8 percent of GDP in 2010). - Historical-averages scenario: public debt-to-GDP around 116 percent by 2020. ### Debt structure - Average remaining maturity of general government debt: 8 years. - More than one third of the debt stock will mature in the next three years; almost half will mature in the next five years. - 98.5 percent of total general government debt denominated in Euro (end-2009). - 89 percent was fixed rate debt at end-2009. - Share of foreign currency (SDR) and floating rate debt expected to rise to about 10 percent and 40 percent during 2012–13, respectively. - EU bilateral (floating) and IMF (floating, and foreign currency) loans amount to 30 percent of total stock in projections. - Debt maturing in next few years was issued many years ago at relatively high nominal interest rates; interest differential between new market debt and old maturing debt is not as large as in other crisis cases. ### Sensitivity analysis — scenarios and impacts (public debt-to-GDP by 2020) - Recognition of implicit or contingent liabilities (assumes identified guarantees €25.8 billion and past swaps €5 billion; includes state-guaranteed ECB liquidity support of €55 billion; all privatization proceeds assumed zero): debt at 176 percent of GDP by 2020. - Weaker fiscal adjustment (smaller adjustment of 1 percent of GDP per year): debt about 123 percent of GDP by 2020. - Weaker growth (1 percentage point lower GDP growth each year): debt around 154 percent of GDP by 2020. - Faster growth (1 percentage point higher): debt down to 74 percent of GDP by 2020. - More severe disinflation (3 percentage points lower inflation in 2011–2012): debt peaks at 144 percent and declines to 168 by 2020. - Higher interest rate (increase of 200 bps on new debt): public debt 121 percent of GDP by 2020. Figure A1 and Table A1 (summarized): baseline and alternative paths shown with scenarios including Combined adverse shocks, Recognition of implicit liabilities and Bank support, 1 ppt higher growth per year, 200 bps higher interest rate, 1% of GDP weaker fiscal adjustment, 3% more deflation, 1 ppt lower growth per year. ### Table A2 (selected projection series, percent of GDP) - Baseline public sector debt (2008–2020): 98, 115, 130, 139, 144, 144, 140, 134, 128, 125, 121, 116, 111 - Change in public sector debt (2008–2020): 2.1, 17.5, 15.1, 9.2, 4.2, 0.5, -4.5, -5.4, -6.1, -3.4, -4.1, -4.4, -4.8 - Primary deficit (2008–2020): 0.7, 8.7, 2.2, 0.8, -1.0, -3.0, -5.7, -5.9, -5.8, -5.9, -5.9, -6.0, -6.0 - Revenue and grants: 39.9, 36.7, 39.6, 41.6, 41.9, 42.5, 42.5, 42.0, 40.4, 40.2, 39.7, 39.3, 38.7 - Primary (noninterest) expenditure: 40.6, 45.4, 41.9, 42.4, 40.9, 39.5, 36.8, 36.1, 34.6, 34.4, 33.8, 33.3, 32.7 - Automatic debt dynamics (contribution): -1.5, 5.6, 6.3, 8.3, 5.2, 3.9, 3.8, 2.7, -0.4, 2.4, 1.7, 1.5, 1.1 - Contribution from real interest rate: 1.2, 3.6, 1.7, 4.8, 6.7, 6.8, 6.7, 6.2, 5.5, 5.7, 5.4, 5.2, 4.7 - Contribution from real GDP growth: -2.7, 2.0, 4.6, 3.5, -1.5, -3.0, -2.9, -3.6, -5.9, -3.3, -3.6, -3.7, -3.6 - Other identified debt-creating flows (including recognition of implicit or contingent liabilities and privatization receipts): 0.9, 1.5, 6.6, 0.1, 0.1, -0.3, -2.6, -2.2, 0.1, 0.1, 0.1, 0.1, 0.1 - Privatization receipts (negative): 0.0, -0.4, 0.0, -0.4, -0.4, -0.4, -0.4, -0.4, -0.4, -0.3, -0.3, -0.3, -0.3 - Recognition of implicit or contingent liabilities: 0.9, 0.3, 6.6, 0.5, 0.5, 0.5, 0.5, 0.5, 0.4, 0.4, 0.4, 0.4, 0.4 - Public sector debt-to-revenue ratio: 244.7, 313.6, 328.6, 335.4, 343.0, 339.0, 328.9, 319.8, 317.0, 309.9, 304.2, 295.9, 287.8 - Gross financing need 6/ (percent of GDP): 5.0, 13.7, 20.8, 22.4, 23.8, 23.1, 30.7, 30.1, 23.3, 20.9, 16.8, 21.4, 13.2 - in billions of U.S. dollars (selected): 17.9, 44.8, 10-Year 69.1, 73.3, 78.3, 77.4, 105.0, 106.9, 87.9, 81.7, 68.7, 91.9, 59.4 ### Key macroeconomic and fiscal assumptions (selected) - Real GDP growth (percent): 3.0 (2008), -2.0 (2009), 3.5 (2010), -4.0 (2011), -2.6 (2012), 1.1 (2013), 2.1 (2014), 2.1 (2015), 2.7 (2016), 4.7 (2017), 2.7 (2018), 3.1 (2019), 3.2 (2020), 3.3 (average) - Average nominal interest rate on public debt (percent) 8/: 4.9, 5.0, 5.5, 4.9, 4.9, 5.3, 5.6, 5.8, 5.8, 5.9, 5.9, 5.9, 6.1, 5.9 (series presented) - Spreads above German bund: 250, 200, 150, 100, 100, 100, 100, 100, 100, 100, 100 - German bund rate: 225, 275, 350, 350, 350, 350, 350, 350, 350, 350, 350 - Average real interest rate (nominal rate minus change in GDP deflator, percent): 1.4, 3.7, 2.2, 1.3, 3.6, 4.9, 4.9, 4.8, 4.7, 4.4, 4.7, 4.6, 4.6, 4.3 - Inflation rate (GDP deflator, percent): 3.5, 1.4, 3.3, 3.5, 1.3, 0.4, 0.7, 1.0, 1.1, 1.4, 1.2, 1.4, 1.5, 1.6 - Growth of real primary spending (deflated by GDP deflator, percent): 5.3, 8.0, 5.7, -11.5, -1.5, -2.4, -1.4, -4.9, 0.8, 0.3, 2.1, 1.3, 1.8, 1.5 - Primary deficit (percent of GDP): 0.7, 8.7, 0.5, 2.2, 0.8, -1.0, -3.0, -5.7, -5.9, -5.8, -5.9, -5.9, -6.0, -6.0 ### Scenario summaries (Table A1 excerpts, public debt-to-GDP) - Baseline scenario: 115, 130, 139, 144, 144, 140, 134, 128, 125, 121, 116, 111 (2009–2020 sequence) - Higher growth of 1 percent per year: 115, 129, 135, 137, 134, 126, 118, 108, 101, 92, 84, 74 - Lower growth of 1 percent per year: 115, 132, 144, 151, 155, 154, 152, 150, 151, 152, 153, 154 - Disinflation (3 percent lower inflation for 2011–2012): 115, 130, 145, 157, 160, 158, 155, 151, 150, 148, 146, 144 - Lower primary deficit (by 1% of GDP): 115, 131, 141, 147, 148, 145, 141, 135, 133, 130, 127, 123 - Recognition of contingent liabilities, and new debt 2/: 115, 167, 180, 187, 190, 191, 190, 185, 184, 182, 179, 176 - 200 bps higher interest rate on new debt: 115, 130, 139, 143, 144, 140, 135, 130, 129, 126, 124, 121 *Source: Greek Ministry of Finance and Fund staff projections.* ### Annex 2. External Debt Sustainability Analysis ### Annex 2. External Debt Sustainability Analysis ### Net external debt developments and baseline projection - Greece’s net external debt increased from 51 percent of GDP in 2002 to 83 percent of GDP in 2009. - Net external debt reflects rising current account deficits to 11 percent of GDP in 2009. - Drivers that moderated historical debt accumulation: relatively low interest rates, relatively high inflation, and above trend GDP growth. - Baseline projection: - Net debt-to-GDP ratio projected to continue rising and peak at 104 percent of GDP in 2013 before declining to 100 percent of GDP in 2015. - Deterioration driven by weakening growth, inflation declining to below the EU average, rising interest rates, and improving current account. ### Sensitivity and shock analysis (individual shocks and impacts) - The net debt position is sensitive to adverse shocks; each individual shock raises the debt ratio relative to baseline: - Weaker real GDP growth: A 1 percentage point lower GDP growth will increase net debt ratio by about 6 percentage points of GDP by 2015 relative to the baseline. - Higher deflation: Reducing inflation by 3 percentage points in 2010 and 2012 will increase the debt ratio by 5 percentage points by 2015 relative to the baseline. - Higher interest rate: A 100 basis points increase in the interest rate will increase the debt to GDP ratio by 6 percentage points by 2015 relative to the baseline. - Higher current account deficit: A permanent ¼ standard deviation shock to the current account deficit will increase the debt to GDP ratio by 10 percentage points relative to the baseline. - Combined shocks have a large negative impact on the debt ratio and debt path. ### Key baseline numeric trajectories (selected series, in percent of GDP unless otherwise indicated) - Net external debt (baseline): - 2005: 58.0 - 2006: 62.0 - 2007: 67.7 - 2008: 73.8 - 2009: 83.4 - 2010: 93.3 - 2011: 100.8 - 2012: 103.7 - 2013: 104.2 - 2014: 103.2 - 2015: 100.4 - Change in external debt (percent of GDP): - 2005: 4.4; 2006: 3.9; 2007: 5.7; 2008: 6.1; 2009: 9.6; 2010: 9.9; 2011: 7.4; 2012: 3.0; 2013: 0.5; 2014: -1.0; 2015: -2.8 - Identified external debt-creating flows (sum of current account deficit excluding interest, net non-debt creating capital inflows, and automatic debt dynamics): - 2005: 2.2; 2006: 3.9; 2007: 4.7; 2008: 9.5; 2009: 10.9; 2010: 13.2; 2011: 9.4; 2012: 4.2; 2013: 2.2; 2014: 1.2; 2015: -0.4 - Current account deficit, excluding interest payments (percent of GDP): - 2005: 5.7; 2006: 9.1; 2007: 11.8; 2008: 11.4; 2009: 8.6; 2010: 8.3; 2011: 5.1; 2012: 4.1; 2013: 3.3; 2014: 2.4; 2015: 1.4 - Net non-debt creating capital inflows (negative values indicate financing): - 2005: -2.8; 2006: -3.2; 2007: -5.3; 2008: -1.4; 2009: -0.8; 2010: -1.0; 2011: -0.9; 2012: -1.5; 2013: -1.6; 2014: -1.8; 2015: -1.8 - Automatic debt dynamics (percent of GDP): - 2005: -0.8; 2006: -2.0; 2007: -1.7; 2008: -0.5; 2009: 3.1; 2010: 5.9; 2011: 5.2; 2012: 1.6; 2013: 0.6; 2014: 0.6; 2015: 0.0 - External debt-to-exports ratio (in percent): - 2005: 273.4; 2006: 292.9; 2007: 314.2; 2008: 327.3; 2009: 468.1; 2010: 489.8; 2011: 480.8; 2012: 465.6; 2013: 445.2; 2014: 422.0; 2015: 395.4 - Gross external financing need (in billions of euros): - 2005: 49.8; 2006: 68.8; 2007: 90.4; 2008: 106.8; 2009: 166.1; 2010: 171.0; 2011: 171.4; 2012: 145.1; 2013: 132.9; 2014: 151.1; 2015: 164.4 - Gross external financing need (in percent of GDP): - 2005: 25.5; 2006: 32.7; 2007: 39.9; 2008: 44.6; 2009: 69.9; 2010: 72.4; 2011: 73.6; 2012: 61.4; 2013: 54.7; 2014: 60.3; 2015: 63.2 ### Key macroeconomic assumptions underlying baseline (selected series) - Real GDP growth (in percent): - 2005: 2.2; 2006: 4.5; 2007: 4.5; 2008: 2.1; 2009: -2.0; 2010: -4.0; 2011: -2.6; 2012: 1.1; 2013: 2.1; 2014: 2.1; 2015: 2.7 - GDP deflator in US dollars (change in percent): - 2005: 2.8; 2006: 3.1; 2007: 3.0; 2008: 3.5; 2009: 1.4; 2010: 3.5; 2011: 1.3; 2012: 0.4; 2013: 0.7; 2014: 1.0; 2015: 1.1 - Nominal external interest rate (in percent): - 2005: 3.6; 2006: 4.1; 2007: 4.6; 2008: 4.9; 2009: 3.5; 2010: 3.1; 2011: 2.8; 2012: 2.7; 2013: 2.7; 2014: 2.7; 2015: 2.7 - Growth of exports (euro terms, in percent): - 2005: 5.2; 2006: 7.4; 2007: 9.6; 2008: 10.4; 2009: -21.5; 2010: 6.3; 2011: 8.5; 2012: 7.9; 2013: 8.0; 2014: 7.8; 2015: 7.8 - Growth of imports (euro terms, in percent): - 2005: 8.6; 2006: 20.2; 2007: 14.3; 2008: 9.6; 2009: -25.2; 2010: 2.4; 2011: -6.3; 2012: 3.3; 2013: 3.9; 2014: 4.0; 2015: 4.3 - Current account balance (percent of GDP): - 2005: -7.5; 2006: -11.3; 2007: -14.4; 2008: -14.6; 2009: -11.2; 2010: -10.8; 2011: -7.8; 2012: -6.9; 2013: -6.0; 2014: -5.1; 2015: -4.0 - Net non-debt creating capital inflows (percent of GDP): - 2005: 2.8; 2006: 3.2; 2007: 5.3; 2008: 1.4; 2009: 0.8; 2010: 1.0; 2011: 0.9; 2012: 1.5; 2013: 1.6; 2014: 1.8; 2015: 1.8 ### Policy measures, program implementation, and fiscal management (from Letter of Intent and MEFP update) - Fiscal performance and targets: - The end-June quantitative performance criteria have all been met. - The government will limit the annual general government fiscal deficit (on accrual terms) to €18.5 billion in 2010. - In January-June the government under-executed state budget primary spending by €5.6 billion; intends to maintain overperformance through September and end-2010 with an overperformance margin of €4 billion to cover risks. - The government will prepare 2011 budgets consistent with a general government fiscal deficit target (in ESA95 terms) of €17 billion in 2011. - Budget law and fiscal framework: - New budget law passed end-July: 2011 budget will be part of a three-year rolling medium-term framework; Minister of Finance can set top-down expenditure ceilings for line ministries, local governments and social budgets. - Standard contingency margins will be included; commitment registers in line ministries (structural benchmark for end-September); monthly fiscal reporting for general government entities (benchmark by end-September). - Tax administration and enforcement (five dedicated task forces to be set up by end-September): - Ensure prompt implementation of new tax legislation. - Collect tax arrears. - Reorganize the large tax payers unit. - Strengthen audits for high-wealth and income individuals. - Strengthen filing and payment controls, and improve taxpayer services. - Public administration reforms: - Single payment authority for wages of central government civil servants by end-2010 and for general government by March 2011. - Move in 2011 to a simplified remuneration system; public employment census completed. - Functional review of central administration beginning in second half of 2010. - Measures to limit risks in subnational entities and public enterprises: - Health sector: reduce procurement prices of pharmaceuticals by 20 percent via price caps; enforce €3 for regular outpatient services in public hospitals; expand use of generics and e-prescriptions; place accounting firms in state hospitals. - Local governments: implement Kallikratis bill to reduce number of local administrations and achieve improved budgetary results of €500 million in each year during 2011-13. - State enterprises: restructure loss-making railroad enterprise; under restructuring, operating PSO’s (public service obligation—subsidies) will be limited to €50 million per year; no new state debt guarantees to the restructured rail enterprise. - The 10 largest loss-making enterprises will have financial statements through 2009 published on the web before end-September (structural benchmark). ### Program status and requests - Based on progress and completion of the prior action, the authorities request completion of the first review under the Stand-By Arrangement and the second purchase under this arrangement in the amount of SDR 2,162.7 million. - The government states policies in the May 3, 2010 LOI and MEFP, and the update, are adequate to achieve program objectives and commits to consult with the Fund on corrective actions as needed. *Source: Annex 2. External Debt Sustainability Analysis; Letter of Intent and Memorandum of Economic and Financial Policies (excerpts) from the provided content.* ### 10. Parliament approved a substantial pension reform ahead of schedule. It ### Parliament approved a substantial pension reform ahead of schedule ### Pension reform: design, assessments, and fiscal objective - Introduces a new system consisting of a contributory pension to top-up a non-contributory, means-tested, basic pension. - Aim: control the increase in pension spending. - National Actuarial Authority (NAA) timeline: - Complete assessment of effects on the main pension funds by end-December 2010. - Complete assessment of the largest auxiliary pension funds by end-March 2011. - Fiscal containment objective: contain the increase in pension spending to 2.5 ppts of GDP between 2009‒2060. - Contingency: Any further adjustments to pension-system parameters, if needed, will be completed by end of June 2011 in consultation with pension experts, as foreseen in Law 3863. ### Implementation status and estimates - Pension reform law was adopted in parliament on July 8, 2010. - Incremental pension costs now estimated at slightly above 2.5 percent of GDP. - Safeguard clause to be triggered in June 2011 pending full actuarial report. --- ### Financing and cash management ### Program financing and liquidity management - State financing need in 2010‒11 remains fully financed from the loans of the Euro-area member states and the IMF. - Government able—to roll over its relatively small stock of T-bills as foreseen in the program. - Tight liquidity position requires careful cash management. - Public debt management agency actions: - Start monthly T-bill auctions beginning in September (from quarterly placements) to improve cash management and smooth maturity profiles. --- ### Financial sector policies ### Banking-sector performance and risks - Banking system capital ratio: declined by 0.05 percentage points to 11.7 percent in Q1. - Non performing loans (NPLs): grew to 8.2 percent from 7.7 percent at end 2009. - Increases in provisions and revaluation losses in the trading book generated a loss for the system on a consolidated basis. - All banks remained in compliance with the minimum capital adequacy requirement of 8 percent. - CEBS stress tests covered more than 90 percent of banking system assets and all but one bank passed. ### Liquidity support and guarantees - Liquidity conditions remained strained; Greek banks have not regained access to wholesale markets. - Sovereign downgrade by Moody’s in June put further pressure on collateral valuations. - Authorities committed to adoption of legislation enabling a new tranche of government guaranteed bank bonds in the amount of €25 billion (a prior action to proceed to the IMF Board meeting on September 10). - Purpose: ensure sufficient loan provision from the ECB/Eurosystem to Greek banks and economy, and to withstand possible further market turbulence. ### Financial Stability Fund (FSF) - FSF law passed: Parliament enacted the Financial Stability Fund Law on July 13. - Steps to make FSF operational by mid-September are well on course; it will receive its first tranche of funding at that time. ### Supervision, restructuring, and contingency work - Enhanced reporting requirements and reduced reporting lags; expansion of supervisory resources is slow, especially given transfer of insurance supervision to the Bank of Greece. - Government commissioned: - An in-depth study on strategic options for the banking sector (to be completed by mid-September). - A preliminary due diligence analysis for financial entities with significant state stakes (to be completed by mid-September). - Single bank that did not pass the most stringent CEBS scenario: - Will continue interim restructuring measures under enhanced supervision by the Bank of Greece while due diligence results are expected. - Government reaffirmed full support and will ensure compliance with EU state aid rules, including the 1 October 2010 deadline for submission of a restructuring plan. - Bank of Greece to maintain close coordination with home and host country supervisors; intensified communications with regulators in SEE and continued participation in colleges of supervisors. - Personal insolvency law adopted after amendments to ensure creditors’ rights are adequately protected. --- ### Structural reform policies ### Overall objectives - Pursue reforms to promote growth, competitiveness, and reduce budgetary risks. - Emphasis on fostering competition culture, ensuring collective bargaining institutions deliver wages commensurate with productivity, developing open markets, removing restrictions that hamper activity and innovation, reforming state-owned enterprises, and promoting absorption of structural funds. ### Labor market reform - Substantive legislative changes introduced in July: - Easing employment protection legislation and collective dismissals. - Reforming minimum wages. - Reducing overtime premia. - Allowing firm-level agreements to prevail over other levels. - Additional measures: - Reform collective bargaining, including elimination of automatic extension of sectoral agreements to those not represented in negotiations. - Adopt legislation to introduce symmetry in the arbitration system while strengthening its independence and transparency. ### Reform and privatization of state-owned enterprises (SOEs) - Railways: - Draft enabling law to restructure the railway sector to be discussed in parliament by end-September. - Government will approve a business plan with time-bound actions aimed at significantly reducing fiscal pressures and making the train operator profitable for the fiscal year 2011. - Business plan to include strategy to render infrastructure manager economically viable over the medium term in line with EU law. - Energy: - Government will enable effective liberalization of the wholesale electricity market and proceed with rationalization of tariffs while ensuring vulnerable groups are protected. - Other SOEs: - Privatization list identified; a fully elaborated plan will be prepared before end-December. ### Competition, services, and business environment reforms - Restricted professions: - Government will remove barriers in the legal, pharmacy, notary, architecture, engineering, and auditing professions, including reducing licensing requirements, geographic restrictions, and regulated tariffs. - Services sectors: - Ambitious implementation of the Services Directive. - Road freight transport: by end-September the government will seek approval for the law that removes restrictions on licenses and liberalizes prices. - Business environment: - Facilitate start-ups by making fully operational one-stop shops and eliminating unnecessary fees. - Adopt legislation to simplify and accelerate authorization for enterprises, industrial activities, and professions. - Identify remaining restrictions and prepare an action plan (“business friendly Greece”) to remove the most important ones. - Tourism and retail: - Government will commission a report analyzing potential contributions of tourism and retailing to growth and jobs and follow up with targeted actions and legislation. - HCC: - Government will amend the Greek Competition Act to strengthen the independence of the Hellenic Competition Committee and increase its effectiveness. ### Structural funds absorption - Increase absorption of structural funds and enhance growth impact. - Gradually reduce recourse to non-targeted de minimis state aid measures. - Adopt legislation to tackle delays related to environmental, archeological and expropriation impediments. - Task force established to address implementation bottlenecks. --- ### Safeguards assessment and program monitoring ### Bank of Greece safeguards and MoU - Bank of Greece safeguards assessment completed by the IMF. - A Memorandum of Understanding (MoU) between the Minister of Finance and the Bank of Greece Governor signed regarding the management and use of Fund disbursements. ### Quantitative performance criteria and monitoring (selected items) - Program exchange rates (as of April 30, 2010) for program purposes: - €1 = 1.3315 U.S. dollar - €1 = 125.81 Japanese yen - €1.135 = 1 SDR - Definition of general government includes: - Central government (entities covered under State Budget and extra-budgetary funds classified under central government per ESA95). - Local government (municipalities, prefectures, regional governments, basic and special budgets). - Social security funds (as per National Statistical Service registry). - Includes any new funds or special budgetary/extra-budgetary programs created during the program period, with IMF, European Commission and ECB to be informed immediately of any creations. - Reporting commitments: - Ministry of Finance to provide detailed monthly information on revenues and expenditures, debt redemptions and issuance, changes in cash balances, other financing sources 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. ### Modified General Government Primary Cash Balance (MGGPCB) — definition highlights - MGGPCB = Modified general government cash balance (MGGCB) minus interest payments by the state budget. - MGGCB components include: - Cash balance of the ordinary state budget (above-the-line measure; privatization receipts excluded; primary spending includes capital transfers to social security funds by bonds and called guarantees where the state assumes payments for entities outside general government). - Cash balance of the public investment budget (above-the-line measure). - Change in net financial assets of local governments (transactions basis, adjusted for valuation changes by Bank of Greece). - Change in net financial assets of social security funds (transactions basis, adjusted for valuation changes by Bank of Greece; minus change in stock of accounts payable of public hospitals to private sector). - Change in net financial assets of extra-budgetary funds (EBFs) (transactions basis, adjusted for valuation changes by Bank of Greece; EBFs exclude ELGA and OPEKEPE). --- ### Selected quantitative actuals versus targets (from program tables) - Floor on primary balance: - Target: -5.0 (Jan-Jun 2010), -4.0 (Jan-Sep 2010), -5.7 (Jan-Dec 2010) - Actual: -4.3 (Jan-Jun 2010) - Margin (+): 0.7 - Ceiling on state budget primary spending: - Target: 34.0 (Jan-Jun 2010), 50.0 (Jan-Sep 2010), 67.0 (Jan-Dec 2010) - Actual: 28.4 (Jan-Jun 2010) - Margin (+): 5.6 - Ceiling on new domestic arrears (indicative target): - Target: 0.0 (Jan-Jun 2010), 0.0 (Jan-Sep 2010), 0.0 (Jan-Dec 2010) - Actual: 1.0 (Jan-Jun 2010) - Margin (+): -1.0 - Ceiling on the stock of debt: - Target: 342.0 (Jan-Jun 2010), 342.0 (Jan-Sep 2010), 342.0 (Jan-Dec 2010) - Actual: 316.7 (Jan-Jun 2010) - Margin (+): 25.3 - Ceiling on new guarantees: - Target: 2.0 (Jan-Jun 2010), 2.0 (Jan-Sep 2010), 2.0 (Jan-Dec 2010) - Actual: 0.3 (Jan-Jun 2010) - Margin (+): 1.7 - Ceiling on new external arrears: - Target: 0.0 (Jan-Jun 2010), 0.0 (Jan-Sep 2010), 0.0 (Jan-Dec 2010) - Actual: 0.0 (Jan-Jun 2010) - Margin (+): 0.0 --- *Source: _cr10286 - 10. Parliament approved a substantial pension reform ahead of schedule.* ### 30. Other provisions. ### 30. Other provisions. ### Bank support and primary expenditure monitoring - For the purpose of the program, the primary expenditure of the central government that is monitored excludes payments related to bank support, when carried out under the program’s banking sector support and restructuring strategy. - Transactions that may be excluded from the balance include: - loans to financial institutions and investments in equity of financial institutions (requited recapitalization); - unrequited recapitalization; and - 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. ### 2010 specific exclusions and transition - For 2010, capital transfers to social security funds by bonds and called guarantees will be excluded from primary spending. - During 2010: - changes in the stock of accounts payable of public hospitals to the private sector will be excluded from the change in net financial assets of social security funds; - the change in net financial assets of EBFs will also be excluded from the modified general government primary cash balance. - From the 2011 fiscal year onward, these factors will be included. ### Revenue adjuster (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 and reporting timetables - 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 will also include data on capital transfers to social security funds in bonds, and called guarantees. - Data on net financial assets of local authorities and social security funds, and extra-budgetary 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. - Data on accounts payable of public hospitals will be provided by the Ministry of Health. ### B. Ceiling of State Budget Primary Spending (Performance Criterion) — Definition and provisions - Definition: The state budget primary spending consists of state budget spending (spending of the ordinary state budget plus spending of the public investment budget) minus interest expenditures paid by the state budget, in line with the definitions provided above. - Primary expenditure of the central government that is monitored for the Performance Criterion excludes any cash payments related to bank restructuring, when carried out under the program’s banking sector 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; and - 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. ### B. Other provisions (state budget primary spending) - Capital transfers to social security funds by bonds and called guarantees will be excluded from primary spending during 2010. - From the 2011 fiscal year onward, such exclusion will no longer apply. ### B. 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: Domestic arrears are defined as accounts payable to domestic suppliers past due date by 90 days. In case no due date is specified on the supplier contract, the due date is assumed to be 90 days of the initiation of the billing invoice. - Monitoring: Data will be provided within four weeks after the end of the month. - Continuous target: Non-accumulation is defined as no accumulation of arrears at the end of every month during which quarter the indicative target is being monitored. - Supporting material: The Ministry of Finance will provide data on monthly expenditure arrears of the general government, as defined above, 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 refers to debt that corresponds to the activities of the state budget and is defined as the total outstanding gross debt liabilities of the central government. It will include, but not be limited to, liabilities in the form of securities and loans. It will exclude accounts payable. - Measurement: - Debt will be measured at nominal value. - The program exchange rate will apply to all non-euro denominated debt. - Inflation indexation will apply to inflation indexed debt, using the relevant index as specified in the debt instrument. - Exclusions: The ceiling will exclude 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; and - purchase of troubled assets. - Reporting: Any financial operation by the central government to support banks, including the issuance of guarantees or provision of liquidity, with the exception of Hellenic Republic intermediation in repos between foreign and domestic financial institutions will be immediately reported to IMF, European Commission and ECB staff. ### D. 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. - In addition, the ceiling will be revised upward by the amount of debt assumed by the central government following the railway sector restructuring. ### D. 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 includes new guarantees granted by the state, as well as new guarantees granted by any other entity that is classified under ESA95 under central government. Guarantees issued by TEMPME shall be included in the ceiling. - Exclusions: The ceiling shall exclude guarantees to support banks and exclude guarantees related to EIB financed loans. - Scope: New guarantees are guarantees extended during the current fiscal year and include guarantees for which the maturity is being extended beyond the initial contractual provisions. ### E. Other provisions (new guarantees) - The end-September 2010 PC on new central government guarantees shall exclude any new guarantees extended by entities (including TEMPME) other than the state. - For the end-December 2010 PC on new central government guarantees, these factors shall be included on a cumulative basis starting October 1, 2010. ### E. Supporting material (guarantees reporting) - 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. - Non-state entities classified under the central government shall report the new guarantees they extended to the General Accounting Office 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: An external debt payment arrear is a payment on debt to non-residents 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 to the IMF, EC and ECB staff any data revisions in a timely manner. ### H. Monitoring of Structural Benchmarks - Pension reform: - Parliament adopted separate laws reforming pensions for the public and private sector in mid-July, ahead of the end-September deadline under the program. - An actuarial evaluation of this law is currently underway. - The National Actuarial Authority will complete an assessment of the effects of the reform on the main pension funds by the end of December 2010, which will be expanded to include the largest auxiliary pension funds by end of March 2011. - This actuarial assessment will determine whether further adjustments to the pension system would be needed to contain the increase in pension spending 2010‒2060 at 2.5 percentage points of GDP. - Any needed adjustments to the parameters of the main pensions will be completed by end of June 2011 in consultation with the EC/IMF/ECB; and a full review of the auxiliary and welfare funds would be completed by end of December 2011. - Financial information of the ten largest loss-making public enterprises: - The ten largest loss-making public enterprises will be defined based on the 2009 net income, after state budget subsidies. - Net income will be defined based on financial statements that are compiled in line with Greek accounting standards. - Published information on financial statements will include the IFRS financial statements. *Source: _cr10286 - 30. Other provisions.* ### 53. The government achieved an important milestone in end-July by passing a new ### _cr10286 - 53. The government achieved an important milestone in end-July by passing a new ### Fiscal framework and budget law - New budget law passed end-July (New budget law approved in parliament on July 29, 2010). - Key features: - 2011 budget will be part of a three-year rolling medium-term framework. - Minister of Finance can set top-down expenditure ceilings for line ministries, local governments and social budgets to broaden fiscal policy scope to general government. - Budget will contain standard contingency margins to facilitate absorbing shocks. - Commitment registers in line ministries to manage accrual spending (structural benchmark for end-September). - Development of monthly fiscal reporting for general government entities (benchmark by end-September). ### 2011 budget preparation and targets - Budgets for 2011 to be prepared under the new law and pre-budget presented to parliamentary committees in early October. - Consolidated draft local government and social budgets will be consistent with a general government fiscal deficit target (in ESA95 terms) of €17 billion in 2011. - Government will take into account sustainability of discretionary spending cuts and, if needed, replace them with permanent savings. - 2011 fiscal measures agreed in May will be put in place. ### Tax administration and anti-evasion measures - Focus on bolstering tax administration and fighting tax evasion. - Implement recommendations received from technical experts. - By end-September, set up five dedicated task forces to: - Ensure prompt implementation of the new tax legislation, - collect tax arrears, - reorganize the large tax payers unit, - strengthen audits for high-wealth and income individuals, - strengthen filing and payment controls, and improving tax payer services. - Measures include intensive use of payments receipts to bolster tax compliance and cross-check tax information with data on wealth and spending habits, targeting high-income and wealthy taxpayers. - Review existing legal processes to ensure timely and effective prosecution of tax offenders. ### Public administration reform and payroll management - Single payment authority to pay wages of civil servants in central government by end 2010 and for general government by March 2011. - Simplified remuneration system planned for 2011, facilitated by completed public employment census. - Functional review of central administration beginning second half of 2010 to identify operational steps to rationalize and improve efficiency. ### Measures to limit program risks and strengthen expenditure control - Health sector: - Accelerate payments in hospital sector to avoid buildup of arrears and limit carryover into 2011. - Reduced procurement prices of pharmaceuticals by 20 percent via price caps for approved drugs lists. - Improved profiles and benchmarking for patients and doctors to avoid unnecessary prescriptions; potential further reductions by expanding drug lists, use of generics, and introducing e-prescriptions. - Enforce €3 for regular outpatient services in public hospitals and extend “all day” operation of hospitals to increase revenues and copayments. - Accounting firms placed in state hospitals to improve financial management. - Local governments: - Kallikratis law approved (Kallikratis Law approved in parliament on May 30, 2010) to sharply reduce number of local administrations, entities, and elected and appointed officials. - Targeted employment reduction and efficiency-enhancing reforms to secure improved budgetary results of €500 million subsequently in each of the three years during 2011-13. - Government will limit borrowing, reduce transfers, and control local government budgets consistent with medium-term fiscal strategy. - State enterprises: - Strengthen performance of major loss-making public enterprises by enhancing efficiency, increasing tariffs in public transportation, and reducing excessive allowances and overtime. - Restructure loss-making railroad enterprise; under restructuring plan operating PSO’s (public service obligation—subsidies) will be limited to €50 million per year. - No new debt guarantees by the state will be provided to the restructured rail enterprise. - The 10 largest loss-making enterprises to have their financial statements through 2009 published on the web before end-September (structural benchmark). ### Pension reform - Parliament approved a substantial pension reform ahead of schedule (Pension reform law was adopted in parliament on July 8, 2010). - New system: contributory pension to top-up a non-contributory, means-tested, basic pension, aiming to control increase in pension spending. - National Actuarial Authority (NAA) to complete assessment of effects of reform on main pension funds by end-December 2010, and of largest auxiliary pension funds by end-March 2011. - Assessments will determine whether further adjustments are needed to contain increase in pension spending to 2.5 ppts of GDP between 2009-2060. - Any further adjustments, if needed, will be completed by end of June 2011 in consultation with pension experts, as foreseen in Law 3863. - Note in Table 2: Pension reform well advanced; and mostly observed, with follow up at end-December 2010 and end-March 2011. Incremental pension costs now estimated at slightly above 2.5 percent of GDP. Safeguard clause to be triggered in June 2011 pending full actuarial report. ### Financing and cash management - State financing need in 2010–11 remains fully financed from loans of the Euro-area member states and the IMF; government able to roll over relatively small stock of T-bills as foreseen in the program. - Tight liquidity position requires careful cash management. - Public debt management agency to start monthly T-bill auctions beginning in September (from quarterly placements) to improve cash management and smooth maturity profiles. - Prior action for IMF Board meeting on September 10: adoption of legislation enabling a new tranche of government guaranteed bank bonds in the amount of €25 billion to preserve liquidity and ensure sufficient ECB/Eurosystem loan provision. ### Financial sector policies and banking system condition - Banking system: in Q1 the banking system capital ratio declined by 0.05 percentage points to 11.7 percent. - Non performing loans grew to 8.2 percent from 7.7 percent at end 2009. - Increases in provisions and revaluation losses in the trading book generated a loss for the system on a consolidated basis. - All banks remained in compliance with minimum capital adequacy requirement of 8 percent. - July CEBS stress tests covered more than 90 percent of banking system assets; all but one bank passed. - Liquidity conditions strained; Greek banks have not regained access to wholesale markets and maturing interbank liabilities put pressure on liquidity. - Sovereign downgrade by Moody’s in June put further pressure on collateral valuations. - Legislation enabling €25 billion tranche of government guaranteed bank bonds is committed as a prior action to support liquidity. - FSF (Financial Stability Fund) law passed (Law for FSF approved in parliament on July 13, 2010); steps to make FSF operational by mid-September are well on course and it will receive its first tranche of funding at that time. - Banking supervision being strengthened: heightened reporting requirements and reduced reporting lags; expansion of supervisory resources is slow, flexibility to address transfer of insurance supervision to Bank of Greece will be provided. - In-depth study on strategic options for banking sector commissioned; preliminary due diligence for state-significant financial entities requested. Both study and due diligences to be completed by mid-September. - Follow-up on CEBS stress tests: single bank that did not pass most stringent scenario will continue interim restructuring under enhanced BoG supervision; government reaffirmed full support and will ensure submission of restructuring plan under EU state aid rules by 1 October 2010. - Bank of Greece to maintain close coordination with home and host country supervisors; intensified communications with regulators in SEE; participation in colleges of supervisors will continue. - Personal insolvency law adopted after amendments to ensure creditor’s rights protected. ### Structural reform agenda to boost growth and competitiveness - Aim to raise productivity and output growth by promoting a competition culture, ensuring collective bargaining delivers wages commensurate with productivity, developing open markets, removing restrictions hampering activity and innovation, reforming state-owned enterprises, and promoting absorption of structural funds. - Labor market reform: - Substantive legislative changes introduced in July easing employment protection and collective dismissals, reforming minimum wages, reducing overtime premia, and allowing firm-level agreements to prevail. - Further measures to reform collective bargaining, including elimination of automatic extension of sectoral agreements to those not represented. - Legislation to introduce symmetry in arbitration system while strengthening independence and transparency. - Reform and/or privatize state-owned enterprises: - Railways: draft enabling law to restructure railway sector to be discussed in parliament by end-September and government to approve a business plan with time-bound actions. Cost reductions aim to make train operator profitable for fiscal year 2011. Business plan to include strategy to render infrastructure manager economically viable over medium term in line with EU law. - Energy: enable effective liberalization of wholesale electricity market and proceed with tariff rationalization while protecting vulnerable groups. - Other SOEs: list of privatization projects identified; fully elaborated plan to be prepared before end-December. - Increase competition and rebound growth: - Remove barriers in legal, pharmacy, notary, architecture, engineering, and auditing professions (reduce licensing requirements, geographic restrictions, regulated tariffs). - Ambitious implementation of Services Directive; in road freight transport seek approval for law removing restrictions on licenses and liberalizing prices by end-September. - Facilitate start-ups via fully operational one-stop shops and elimination of unnecessary fees; adopt legislation to simplify and accelerate authorization for enterprises, industrial activities, and professions. Formulate “business friendly Greece” action plan to remove key restrictions. - Commission report on potential contributions of tourism and retail to growth and jobs and follow up with actions and legislation. - Amend Greek Competition Act to strengthen independence of Hellenic Competition Committee (HCC) and increase its effectiveness. - Absorption of structural funds: - Gradually reduce recourse to non-targeted de minimis state aid measures. - Adopt legislation to tackle delays related to environmental, archeological and expropriation impediments. - Task force established to address implementation bottlenecks. ### Safeguards assessment - Bank of Greece safeguards assessment completed by the IMF. - Memorandum of Understanding between Minister of Finance and Bank of Greece Governor signed regarding management and use of Fund disbursements; no outstanding issues. ### Quantitative performance criteria (selected figures from Table 1) - 1 Floor on primary balance - Target: -5.0 (Jan-Jun 2010), -4.0 (Jan-Sep 2010), -5.7 (Jan-Dec 2010) - Actual: -4.3 - Margin (+): 0.7 - 2 Ceiling on state budget primary spending - Target: 34.0 (Jan-Jun 2010), 50.0 (Jan-Sep 2010), 67.0 (Jan-Dec 2010) - Actual: 28.4 - Margin (+): 5.6 - 3 Ceiling on new domestic arrears (indicative target) - Target: 0.0 (Jan-Jun 2010), 0.0 (Jan-Sep 2010), 0.0 (Jan-Dec 2010) - Actual: 1.0 - Margin (+): -1.0 - 4 Ceiling on the stock of debt - Target: 342.0 (Jan-Jun 2010), 342.0 (Jan-Sep 2010), 342.0 (Jan-Dec 2010) - Actual: 316.7 - Margin (+): 25.3 - 5 Ceiling on new guarantees - Target: 2.0 (Jan-Jun 2010), 2.0 (Jan-Sep 2010), 2.0 (Jan-Dec 2010) - Actual: 0.3 - Margin (+): 1.7 - 6 Ceiling on new external arrears - Target: 0.0 (Jan-Jun 2010), 0.0 (Jan-Sep 2010), 0.0 (Jan-Dec 2010) - Actual: 0.0 - Margin (+): 0.0 ### Structural benchmarks and timelines (selected entries from Table 2) - End-June - Establish FSF — Observed (Law for FSF approved in parliament on July 13, 2010) - Adopt Kallikratis law — Observed (Kallikratis Law approved in parliament on May 30, 2010) - Adopt new Financial Management Law, amending the budget Law of 1995 — Observed (New budget law approved in parliament on July 29, 2010); includes 3-yr fiscal strategy, top down budgeting with expenditure ceilings, standard contingency margins, supplementary budget for overspending, commitment controls; effective for 2011 budget. - NAA to produce actuarial report — Incomplete (Rescheduled to end-December 2010 for main social security funds, and end-March 2011 for remaining supplementary funds). - Prior action for First Review Board Meeting - Enactment of €25 billion bond guarantee tranche — End-September 2010 (To support bank liquidity). - Other ongoing and near-term benchmarks - Adopt comprehensive pension reform — Well advanced; and mostly observed, with follow up at end-December 2010 and end-March 2011. - Establish commitment register — ongoing. - Publish monthly data on GG — ongoing. - Report all arrears monthly — ongoing. - Publish financial statement of 10 largest loss-making SOEs — ongoing. - Kick-off tax administration plan and set up five task forces — Progress underway; TA received with follow-up planned; collection of tax arrears ongoing; reorganize large tax payers unit ongoing; strengthen audits for high-wealth and income individuals ongoing; start prosecuting worst offenders ongoing; strengthen filing and payment controls ongoing. - End-December 2010: Report with single payment authorities on public sector remuneration structures — Work has begun; employment census completed. - End-December 2010: Adopt new regulations for Statistical Action Plan — Work has begun; MOUs being drafted; Greece has received resident expert; new President of ELSTAT in place. - End-December 2010: Present detailed privatization plan with dates and revenue guidelines — Work has begun; potential privatization list drawn up; details need fleshing out. *Source: IMF staff report content from the provided document excerpt.* ### 1. Actions for the second review (actions to be completed by end Q3-2010) ### 1. Actions for the second review (actions to be completed by end Q3-2010) ### i. Fiscal consolidation - Rigorously implement the budget for 2010 and the fiscal consolidation measures announced afterwards, including those in this Memorandum (including its previous version). - The Ministry of Finance ensures tight supervision of expenditure commitments by the government departments, and effective tax collection, to make certain that the general government deficit targets in cash and ESA95 bases (cumulative quarterly deficit ceilings in the Memorandum of Economic and Financial Polices (MEFP) including the Technical Memorandum of Understanding (TMU); and Article 1 of Council Decision 2010/320/EU) are achieved. - The 2011 budget will: - provide information and reliable projections on the entire general government sector; - target a further reduction of the general government deficit in line with the original MEFP; - include 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); - include detailed information on the situation of public enterprises. - The budget will include the following measures (or comparable savings in exceptional circumstances, in close consultation with European Commission, IMF and ECB staffs): - Implement the rule of replacing only 20 percent of retiring employees in the public sector (central government, 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; - Reduction in domestically-financed investments by at least EUR 500 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 regularize 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, or a measure of the same yield to be agreed with the EC/IMF/ECB staffs; - 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 licenses and EUR 200 in annual royalties; - Expand the base of the real estate tax by updating asset values to yield at least EUR 400 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 unauthorized 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, including the medium-term fiscal framework for 2012-2013; - The budget will contain indicative information on monthly revenue per category, and expenditure per Ministry, with updated figures regularly made available online. - Government implements the new organic budget law and ensures 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. ### ii. Structural fiscal reforms - Tax administration - Parliament adopts legislation to improve the efficiency of the tax administration and controls, implementing recommendations provided by the European Commission and IMF staffs. - Implement an effective project management arrangement (including tight oversight by the Ministry of Finance 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; - a strengthened filing and payment control program. - Accounting and control - Government implements the reform of the general accounting office (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 organization and information-sharing systems; - Provision of safeguards for GAO staff against political interference, and personal accountability in the provision of reliable data; - Strengthen institutional mechanisms for providing reliable and plausible official budgetary forecasts that take into account available recent execution developments and trends; official macroeconomic forecasts should be reviewed by external experts. - 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 accounts payable 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, agreed with Eurostat, to improve collection and processing of general government data required under the existing EU legal framework, enhancing mechanisms that ensure prompt and correct supply of these data, ensuring personal responsibility in cases of misreporting; and receive 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). A regular and timely reporting mechanism is introduced. - The Ministry of Finance establishes a comprehensive central registry for public enterprises. ### iii. Financial sector regulation and supervision - The Bank of Greece and the Government ensure that the Financial Stability Fund is fully operational. - Government makes available an in-depth study on the strategic options for the banking sector as well as a preliminary due diligence analysis for those financial entities in which the state has a significant stake. - Following up on the result of the July 2010 CEBS stress tests, the bank which did not pass the test implements interim restructuring measures under enhanced supervision by the Bank of Greece. - Government provides its full support to this bank and ensures that it complies with the requirement of implementing a restructuring plan under the EU rules for state aid, including compliance with the 1 October 2010 deadline for submission. - The Bank of Greece commits to reduce remuneration of its staff in light of the overall effort of fiscal consolidation. ### iv. Structural reforms - To strengthen labour market institutions - Following dialogue with social partners, Government adopts and implements 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. - Government ensures that firm level agreements take precedence over sectoral agreements which in turn take precedence over occupational agreements. - Government removes the provision that allows the Ministry of Labour to extend all sectoral agreements to those not represented in negotiations. - Government amends employment protection legislation to extend the probationary period for new jobs to one year, and to facilitate greater use of temporary contracts and part-time work. - Government amends regulation of the arbitration system (Law 1876/1990) so that each of the parties can resort to arbitration if they disagree with the proposal of the mediator without exceptions on subject or coverage, according to the provisions of Law 3863/2010; provides for an arbitration procedure that operates according to transparent objective criteria, and with an independent committee of arbitrators with decision making capacity free from government influence; objectives of arbitration should ensure attention to cost competitiveness, supporting job creation. - To modernise public administration - Public sector wages and human resource management - Government launches the process, including the principles and timetable, for establishing a simplified remuneration system covering basic wages and allowances, to apply to all public sector employees and be part of overall Human Resource management reform. The system should reflect productivity and tasks and, as a general principle, avoid increases in remuneration for employees as a result of the transition process. - Functional reviews - Government launches independent functional reviews of the public administration at central level and of existing social programmes, to be conducted by internationally renowned and external experts. Terms of Reference will be agreed with the European Commission, IMF and ECB staffs. Participation shall include the office of the Prime Minister, the Ministry of Interior, the Ministry of Finance, the Ministry of Labour and Social Security and the Ministry of Health and Social Solidarity. - Objectives of the review on public administration at central level: - 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. The review shall encompass horizontal issues related to planning, organisation, staffing and control functions (including internal audit), and include specific studies for all main ministries and key public bodies. - Objectives of the review on existing social programmes: - 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 assess the options for reform of the overall health care system (both public and private) with the aim of securing more efficient use of public resources and delivery of better quality health care services. - Public procurement - Government agrees an action plan, with a timetable for concrete actions, leading to the creation of a central procurement authority, involving swift implementation of the electronic platform for public procurement and introducing the use of an e-auctioning system. It should ensure a common approach across government authorities for tendering procedures, ex ante and ex post controls. - To strengthen competition in open markets - Services Directive - Under the Services Directive, the government finalizes the review (screening) of existing sectoral legislation, and provides a list of restrictions that are being abolished or amended as a result. - The Government ensures the electronic point of single contact is operational with a user-friendly internet portal which: - lists all relevant information for the specific service; - for each service activity provides an overview of procedures to be complied with, distinguishing between the requirements that apply in establishment cases and for cross-border service provision; - allows common procedures (including for the most important regulated professions and in the areas of tourism, retail, education and construction) to be completed by electronic means with the necessary forms available on-line and recognising electronic signatures in accordance with Decision 2009/767/EC. - Transport - 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. - The government adopts legislation, proposed by the Ministry of Infrastructure, Transport and Networks, establishing necessary enabling conditions for development and implementation of a business plan in the railway sector and submits it to Parliament for voting. The legislation should inter alia: - ensure compliance with all relevant EU legislation on the railway sector to effectively ensure market opening, employment and social policies, as well as competition and state aid policy; - establish an upper limit of EUR 50 million for the annual Public Service Obligation (PSO) contribution from the general government for the period 2011-2013 and establishes the principle that the State provides no additional explicit or implicit support to TRAINOSE; - provide for any future changes to the level of PSO transfers to the railway operators to be approved only after an independent and transparent assessment by the Hellenic Competition Commission and to be fully in line with all legislation related to budgetary control and execution; - provide certainty that the managing boards of TRAINOSE and OSE have the legal authority to negotiate new collective agreements covering remuneration and employment conditions and to take staffing decisions that assure a viable business; - ensure that decisions on the transfer of debt to the State become effective only after the implementation of key actions in the approved business plan. - The government adopts a business plan, proposed by the Ministry of Infrastructure, Transport and Networks, with a detailed timetable for concrete actions, which inter alia: - specifies how operational activities will be made profitable, including covering depreciation costs, as from 2011 including by closing loss-making lines, by increasing tariffs and by reducing wages and staffing; - provides a detailed sensitivity analysis on the implications for wage costs of various scenarios for the outcome of collective agreement. This provides information on several options concerning staff; - ensures the effective implementation of EU Directives, including EU Directives 2007/59/EC and 20078/57/EC on the Train Driver Certificate and on the Interoperability of the Rail System, respectively, allowing for competition amongst providers of railway services; - provides for the restructuring of the holding company, including the sale of land and other assets. - To promote 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...), the adoption of measures to facilitate public private partnerships (PPPs), action to fast-track large FDI projects and measures to strengthen export promotion policy. - These actions focus on removing rigidities and administrative constraints and must be fully in line with the fiscal requirements of the Memorandum of Understanding. *Source: _cr10286 - 1. Actions for the second review (actions to be completed by end Q3-2010)* ### 2. Actions for the third review (to be completed by end Q4-2010) ### _cr10286 - 2. Actions for the third review (to be completed by end Q4-2010) ### Fiscal consolidation - Government achieves the programme target for the 2010 general government deficit. - Parliament adopts the budget for 2011 targeting a further reduction in the general government deficit and including the required consolidation measures including those specified in this Memorandum. - The Ministry of Finance ensures tight supervision of expenditure commitments by the several government departments, and effective tax collection, to make certain that general government deficit target in cash and ESA95 bases (see respectively Table 2 of MEFP and Article 1 of Council Decision 2010/320/EU) are achieved. - Government prepares a privatization plan for the divestment of state assets and enterprises with the aim to raise at least EUR 1 billion a year during the period 2011-2013. - Restructuring and privatization programme to span state holdings in rail, road transport, airports, ports, utilities, the gaming industry and public real estate. - Use outright sales, concession agreements, initial public offerings, strategic public-private partnerships and establishment of new holding companies to leverage private investment and contribute to fiscal consolidation. - Accounting and control: Government ensures that the central registry for public enterprises is operational. ### Structural fiscal reforms - The fiscal framework: Government implements legislation to strengthen the fiscal framework. Elements to be part of the reform: - 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 ministries 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 of 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, hospitals and legal entities) will 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 the reform of the public wage legislation consistent with this Memorandum. - To complete the pension reform: - The National Actuarial Authority provides by 1 December 2010 interim long-term projections of pension expenditure up to 2060 under the July 2010 legislation covering the main pension schemes (IKA, OGA, OAEE, public sector scheme). ### Financial sector regulation and supervision - Taking into account the outcome of the strategic study and the due diligences of banks, the Government formulates a programme to preserve financial stability and enhance efficiency in the banking system. ### Structural reforms — public administration and local government - Local administration: - Government adopts all necessary legislation and decrees for full entry into force of the local administration reform (Kallikrates). - Ensure savings of EUR 500 million in 2011 and additional EUR 500 million per year in 2012 and 2013 for the general government as a whole. - Government shall adopt a decree disallowing local governments to run deficits at least until 2014. - Public sector wages and human resource management: - Ministry of Finance together with Ministry of Interior completes establishment of a Single Payment Authority for payment of wages in the public sector. - Ministry of Finance publishes a detailed report, with the Single Payment Authority, on structure and levels of compensation and the volume and dynamics of employment in the general government. - The report should present plans for allocation of human resources up to 2013 specifying plans to reallocate qualified staff to tax administration, GAO, the labour inspectorate, regulators and Hellenic Competition Commission. - Government presents a detailed action plan with timeline to complete and implement a simplified remuneration system. - Better Regulation: Government adopts legislation and measures needed to implement the Better Regulation agenda. ### Structural reforms — health care - Government adopts legislation on the institutional framework for health supplies (Law 3580/2007, as revised in May 2010 by Law 3846/2010), and establishes new systems for drug management that favour more use of generic medicines, including new electronic monitoring of doctors' prescriptions. - Aim to move to the average EU generic drug penetration rate, including by procurement of pharmaceutical products by hospitals and doctors' prescriptions on the basis of drastic substances. - Government enforces payment of EUR 3 for regular outpatient services in public hospitals and extends 'all day' functioning of hospitals (afternoon shift) to develop services and increase revenue, including by increasing co-payment of outpatients and diagnostic services. - Government completes the programme of hospital computerisation, upgrading hospital budgeting systems, and reform of management, accounting (including double-entry accrual accounting) and financing systems. - Government ensures greater budgetary and operational oversight of health care spending by the Finance Minister, publication of audited accounts and improvement in pricing and costing mechanisms. - Government seeks technical assistance from independent international experts on health procurement and hospital management to enhance efficiency and reduce waste. ### Structural reforms — competition, services and restricted professions - Competition and business registries: - Government makes the General Commercial Registry (GEMI) fully operational. - Services Directive implementation: - Government adopts changes to existing (sectoral) legislation in key services sectors such as tourism, retail and education services to: - facilitate establishment by abolishing or amending requirements prohibited by the Services Directive and significantly reducing requirements (quantitative and territorial restrictions, legal form requirements, shareholding requirements, fixed minimum and/or maximum tariffs and restrictions to multidisciplinary activities); - facilitate cross-border services so providers comply with specific requirements in Greek legislation only in exceptional cases (Articles 16 or 17 of the Services Directive); - provide legal certainty for cross-border service providers by clearly setting out which requirements can and cannot be applied. - Government specifies a limited number of priority service sectors key for growth, and a timetable for adopting sectoral legislation by end Q2 2011 to ensure full compliance with the Services Directive. - Restricted professions: Government proposes legislation to remove restrictions to competition, business and trade in restricted professions including: - legal profession: remove unnecessary restrictions on fixed minimum tariffs, the effective ban on advertising, territorial restrictions on where lawyers can practice in Greece; - pharmacy profession: limits on the number of pharmacies and minimum profit margins; - notary profession: fixed tariffs, limits on number of notaries, territorial restrictions, effective ban on advertising; - architects: fixed minimum tariffs; - engineers: fixed minimum tariffs; - auditing services: fixed tariffs. - Transposition of recognition rules: Government adopts legislation and takes measures to complete effective transposition of EU rules on recognition of professional qualifications, including compliance with all ECJ rulings, setting up administrative structures for application, and timely information to citizens about pending recognition requests. ### Structural reforms — sectoral growth drivers and business environment - Sectoral reports: - Government presents a report analysing potential contribution of the tourism sector to growth and jobs, identifying legislative, administrative and other obstacles to competition and market entry. - Government presents a report analysing potential contribution of the retail sector to price flexibility, growth and jobs, identifying legislative, administrative and other obstacles. - Business environment: - Government adopts legislation to simplify and accelerate licensing of enterprises, industrial activities and professions (inter alia revise Law 3325/05, make the spatial plan and Law 3333/05 for business areas operational). - Government adopts an "action plan for a business friendly Greece" presenting a timetable for removal of 30 of the most important remaining restrictions to business activity, investment and innovation. - Government accelerates completion of the land registry and prepares a progress report including an action plan. - Government adopts a law modifying the institutional framework of the Hellenic Competition Commission (HCC) to abolish the notification system for agreements within scope of Article 1 of Law 703/1977, give HCC power to reject complaints, increase independence of HCC members, and establish reasonable deadlines for investigations and decisions. ### Structural reforms — energy - Government presents detailed plans for liberalisation of the energy market, including opening up lignite-fired electricity generation to third parties in line with EU requirements. - Government adopts plan for phased transitory cost-based access to lignite-fired generation, taking into account decommissioning scheduled under the Government's Energy Plan to meet the 20-20-20 target; this access will remain until effective implementation of liberalisation. - Government adopts a plan to either award hydro reserves management to an independent body or assign this role to the independent system operator. - Government adopts a mechanism to ensure that the energy component of regulated tariffs reflects, gradually and at the latest by June 2013, wholesale market prices, except for vulnerable consumers. - Government adopts a revised definition of vulnerable consumers and a tariff for this category. - To ensure unbundling of network from supply activities, Government identifies assets and personnel associated with the electricity transmission and distribution systems. ### Structural reforms — investments, R&D and cohesion funds absorption - R&D and innovation: - Government carries out in-depth evaluation of all R&D and innovation actions, including in Operational Programmes, to adjust national strategy and limit use of government subsidies and guarantees. - Government creates an external advisory council financed through the 7th R&D programme to consider fostering innovation, strengthening links between public research and Greek industries and development of regional industrial clusters. - Structural and Cohesion Funds absorption: - Government meets targets for payment claims in absorption of Structural and Cohesion Funds set down in the table below; compliance measured by certified data. - Government achieves an annual target of submitting 10 major project applications to the Commission services. - In meeting absorption rate targets, recourse to non-targeted de minimis state aid measures should be gradually reduced. - Government presents a report on activities of the task force assessing progress in rapid implementation and absorption of structural funds and proposing improvements. - Programming period 2007-2013 — Payment claims to be submitted between 2010 and 2013 (in EUR million): - European Regional Fund and Cohesion Fund: 2010 2330 2011 2600 2012 2850 2013 3000 - European Social Fund: 2010 420 2011 750 2012 880 2013 890 - Target of first half of the year: 2010 110 2011 512 2012 31 2013 1284 - Target of second half of the year: 2010 2245 2011 2499 2012 2606 - Total annual target: 2010 2750 2011 3350 2012 3730 2013 3890 - Public works and investment projects: Government adopts legislation to tackle delays in implementation, including: - shorten and simplify judicial procedures challenging contract awards or land expropriation decisions; - shorten deadlines to get permits by the Central Archaeological Council in Athens; - simplify and shorten procedures for environmental impact studies and approval of environmental terms for infrastructure projects. --- ### Actions for the fourth review (to be completed by end Q1-2011) #### Fiscal consolidation - Government rigorously implements the budget for 2011 in line with this Memorandum. - 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. - To complete the pension reform: - The National Actuarial Authority submits comprehensive long-term projections of pension expenditure up to 2060 under the adopted reform; the projection will be peer-reviewed and validated by the EU Economic Policy Committee and the European Commission, IMF and ECB. - The projections shall encompass the supplementary (auxiliary) schemes, based on comprehensive set of data collected and elaborated by the National Actuarial Authority. #### Structural reforms — public procurement, restricted professions, sectoral drivers and energy - Public procurement: - Government completes effective transposition of Directive 2007/66/EC on public procurement regarding remedies, and ensures responsibility for review of award procedures is vested with the administrative courts. - Government completes transposition of Directives 2009/81 on defence and security expenditure. - Restricted professions: - Government adopts specific legislation on restricted professions including for the legal profession, pharmacy, notary, architects, engineers and auditing services. - Sectoral growth drivers: - Government adopts legislation and structural actions to implement findings of the reports on tourism and retail sectors' contribution to growth and jobs. - Energy: - Government commences implementation of plan for opening up lignite-fired electricity generation to third parties. - Government implements decision to either award hydro reserves management to an independent body or assign role to the independent system operator. - Government starts to implement mechanism to ensure that the energy component of regulated tariffs reflects, gradually and at the latest by June 2013, wholesale market prices, except for vulnerable consumers. - Unbundling/network measures: - Government adopts decision on modalities of unbundling of the transmission system operator in line with the third energy liberalization package, and adopts necessary legislation to ensure creation of fully unbundled electricity and gas transmission system operators by March 2012. - Government ensures creation of an independent Distribution System Operator, in line with the third energy liberalisation package. - Government transfers to RAE (Regulatory Authority for Energy) all regulatory powers assigned to EU energy regulators in the third energy liberalisation package (licensing, network access, network charges, market monitoring, etc). - Government adopts measures to ensure the independence of RAE (impartial and transparent nomination of board, management authority regarding budget and personnel, etc. in line with the third energy liberalisation package). *Source: _cr10286 - 2. Actions for the third review (to be completed by end Q4-2010), Attachment IV.* ### 4. Actions for the fifth review (to be completed by end Q2-2011) ### 4. Actions for the fifth review (to be completed by end Q2-2011) ### i. Fiscal consolidation - Government rigorously implements 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). ### ii. Structural fiscal reforms - Pension reform completion: - Government revises the main parameters of the pension system provided by Law 3863/2010, if the projections by the National Actuarial Authority show that the projected increase in public pension expenditure would exceed the limit of 2.5 percentage points of GDP over 2009-60. The revision should be designed in close consultation with the European Commission, the IMF and the ECB staffs. - Government implements an in-depth revision of the functioning of supplementary/auxiliary public pension funds to stabilise pension expenditure and guarantee the budgetary neutrality of supplementary/auxiliary schemes. - Government substantially revises the list of heavy and arduous professions, and reduces its coverage to no more than 10% of the labour force. The new list of Difficult and Hazardous Occupations shall apply with effect from 1 July 2011 to all current and future workers. - The Bank of Greece commits not to grant pension privileges to its staff and to revise the main parameters of its pension scheme to align them with those of IKA. ### iii. Structural reforms - To modernise public administration: - Public sector wages and human resource management: Government adopts legislation 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. - Functional reviews: Government assesses the results, including operational policy recommendations, of a first phase of the independent functional review of public administration at central level presented by external experts, including results of studies applied to a number of core ministries. The functional review of existing social programmes is finalised. - Public procurement: Government implements the reform of the public procurement system, as defined in the action plan. - To strengthen 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. - To strengthen competition in open markets: - Services Directive: Government adopts legislation on a limited number of priority service sectors identified in Q4 2010. Government specifies, for a limited number of priority service sectors, a timetable for adopting sectoral legislation by end Q4 2011 that ensure full compliance with the requirements of the Services Directive. - Business environment: Government presents an impact assessment evaluating Law 3853/2010 on simplification of procedures for the establishment of personal and capital companies in terms of the savings achieved in time and cost to set up a business. - Government ensures that the point of single contact is fully operational and completion of procedures by electronic means possible in all sectors covered by the Services Directive. - Energy: Government removes regulated tariffs for customers except households and small enterprises (as defined in the second and third energy liberalisation packages). - To raise the absorption rates of Structural and Cohesion Funds: - Government meets targets for payment claims to be measured against certified data. - Government presents a report on the activities of the task force assessing progress in ensuring the rapid implementation absorption of structural funds, and proposing improvements when necessary. --- ### 5. Actions for the sixth review (to be completed by end Q3-2011) ### i. Fiscal consolidation - Government rigorously implement the budget for 2011 in line with this Memorandum. Progress is assessed against the quarterly deficit ceilings in the MEFP (including the TMU). - Government adopts the 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 staffs): - 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; (Adjustment note: Adjustments may be needed in case of negative inflation.) - 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 annual royalties; - Further broadening of VAT base with the aim of collecting at least additional EUR 300 million. ### ii. Structural 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 European Commission. - To 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. --- ### 6. Actions for the seventh review (to be completed by end Q4-2011) ### i. Fiscal consolidation - Government achieves the programme targets for the 2011 general government deficit. - Parliament adopts the 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. ### ii. Structural reforms - To modernise public administration: - Functional reviews: Government assesses the results of a second phase of the independent functional review of public administration at central level presented by external experts. The government adopts legislation and measures to implement the first set of operational recommendations of the functional review of public administration at central level and the review of existing social programmes. - To strengthen competition in open markets: - Energy: Government removes regulated tariffs for customers except households and small enterprises (as defined in the second and third energy liberalisation packages). - To raise the absorption rates of Structural and Cohesion Funds: - Government meets targets for payment claims (to be measured against certified data). - Government introduces web-based open-access monitoring tool of procedures for approval of project proposals and for implementation of public projects. - Government ensures 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). - Government presents a report on the activities of the task force assessing progress in ensuring the rapid implementation absorption of structural funds, and proposing improvements when necessary. --- ### Annex 1. Provision of data - To be provided by the Ministry of Finance (selected reporting frequencies 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): Monthly, 30 days after the end of each month (starting in June 2010). - Quarterly data on general government accounts, and 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: 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, hospitals 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 fulfillment of policy conditionality: Monthly, at the end of each month. - To be provided by the Bank of Greece (selected reporting frequencies 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: 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. - 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 to enhance flexibility and efficiency. - 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 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 with a right to participate, without voting. - Chairperson, Chief Executive and non-ex officio directors required by law to be persons of recognised standing in banking or financial matters in Greece, the EU or internationally. - Appointment terms: five year term of office, renewable for a further two years; compulsory removal only by an appropriate Greek court on application of either the Governor of the Bank of Greece or the Governing Council 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. - Legislation will provide that the Governor of the Bank of Greece and Governing Council members shall not seek or take instructions from the Greek Government or any other State entity when exercising powers under the legislation. - 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 - The Fund will enjoy powers over credit institutions receiving capital from the Fund, to be exercised following consultation of the BoG, without prejudice to the supervisory powers of the Bank of Greece, including: - to require the BoG to provide the Fund with all information on financial institutions necessary for it to fulfill 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; legislation 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. - The Bank of Greece 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 - Conditions should be aligned with the Commission Decision of 19.11.2008 (N 560/2008 support measures for the credit institutions in Greece). - Granting of equity capital is subject to conditions in particular: - Credit institutions 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%. - Credit institutions will not pay dividends or coupon on hybrid capital, unless legally obliged to do so; 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 equivalent to the amount originally invested. 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. *Prepared by the European Department (In Consultation with Other Departments); Approved September 8, 2010.* ### 73. An update has occurred since the Staff Report was issued. This reflects new and ### _cr10286 - 73. An update has occurred since the Staff Report was issued. This reflects new and ### Update to reporting and impact on program monitoring - ECB Regulation No 25/2009 introduced new and more detailed reporting requirements for financial institutions in euro area countries. - Authorities improved information on deposit and loan data for local governments and the social security funds. - The update shows higher net financial assets of local governments and the social security sector, which impacts the calculation of the performance criterion on the modified general government primary cash balance (MGGPCB). - The primary balance (MGGPCB) was revised from € -4.3 billion to € -3.9 billion. - The revision implies stronger overperformance than reported in the staff report, resulting in a wider margin than shown in the staff report (Tables 1 and 2). - The new reporting templates remain in effect from now on; changes in the templates are infrequent, with intervals of five years being the recent experience as determined by the ECB. - IMF staff will continue to monitor program performance with data provided under the new templates. ### Quantitative performance criteria (Jan-Jun 2010; Table 1 highlights) - Floor on primary balance - Target: -5.0 (Jan-Sep 2010), -5.0 (Jan-Dec 2010), -4.0 (Jan-Jun 2010), -5.7 (Jan-Dec 2010) - Actual: -4.3 (Jan-Sep 2010), -3.9 (Jan-Dec 2010) - Margin (+): 0.7 (Jan-Sep 2010), 1.1 (Jan-Dec 2010) - Ceiling on state budget primary spending - Target: 34.0, 34.0, 50.0, 67.0 - Actual: 28.4, 28.4 - Margin (+): 5.6, 5.6 - Ceiling on new domestic arrears (indicative target) - Target: 0.0, 0.0, 0.0, 0.0 - Actual: 1.0, 1.0 - Margin (+): -1.0, -1.0 - Ceiling on the stock of debt - Target: 342.0, 342.0, 342.0, 342.0 - Actual: 316.7, 316.7 - Margin (+): 25.3, 25.3 - Ceiling on new guarantees - Target: 2.0, 2.0, 2.0, 2.0 - Actual: 0.3, 0.3 - Margin (+): 1.7, 1.7 - Ceiling on new external arrears - Target: 0.0, 0.0, 0.0, 0.0 - Actual: 0.0, 0.0 - Margin (+): 0.0, 0.0 ### Modified General Government Cash Balance for Program Monitoring (Table 2; selected figures) - State budget revenues and related items (years and program projections presented in table) - Revenues: 50.5; 25.1; 24.2; 41.2; 38.7; 58.4; 56.8 - Net income Ordinary Budget (A+B-C): 48.5; 24.1; 23.8; 39.1; 38.2; 55.1; 53.8 - Recurrent/ordinary revenue (A): 52.3; 25.8; 25.1; 41.6; 40.6; 58.6; 57.4 - Direct taxes (component of recurrent revenue) - Total direct taxes: 21.4; 9.0; 8.9; 15.3; 15.0; 21.7; 21.4 - Income taxes: 16.6; 6.3; 6.0; 11.5; 10.8; 16.6; 15.6 - PIT: 10.9; 4.5; 4.3; 7.7; 7.5; 10.9; 10.7 - CIT: 3.4; 1.0; 1.1; 2.2; 2.0; 3.5; 3.0 - Indirect taxes (component of recurrent revenue) - Total indirect taxes: 28.3; 15.6; 14.8; 24.4; 23.4; 34.1; 32.9 - Transaction taxes: 17.9; 9.4; 8.9; 14.9; 14.3; 20.2; 19.5 - VAT: 16.6; 8.7; 8.4; 13.6; 13.4; 18.5; 18.4 - Total expenditure and spending components - Total expenditure: 83.6; 39.8; 34.1; 60.5; 56.4; 79.8; 76.4 - Total ordinary spending: 70.3; 34.2; 30.2; 51.6; 49.6; 67.9; 66.1 - Total ordinary primary spending: 58.0; 26.8; 24.5; 40.0; 37.7; 54.9; 52.7 - Interest expenditure: 12.3; 7.4; 5.7; 11.7; 11.9; 13.0; 13.4 - Investment spending: 9.6; 4.2; 3.7; 6.8; 5.6; 9.2; 8.2 - State Budget primary spending (variable monitored for PC) - 71.3; 32.4; 28.4; 48.8; 44.3; 66.8; 62.7 - Balance state budget (variable monitored for PC) - -33.1; -14.7; -9.9; -19.3; -17.7; -21.4; -19.6 - Balance local governments (change in net financial assets; excludes valuation changes) - 0.0; 0.9; 0.3; 1.0; 0.2; 0.1; 0.0 - Balance social security funds - 1.9; 1.9; 0.0; 3.1; 1.6; 2.6; 2.3 - Modified general government cash balance (IV) - -31.2; -12.0; -9.6; -15.2; -15.9; -18.7; -17.2 - Modified general government primary cash balance (variable monitored for PC) - -18.9; -4.6; -3.9; -3.5; -3.8; -5.7; -3.6 - Memorandum items - Floor on the modified general government primary cash balance: ... -5.0 -3.9 -4.0 ... -5.7 ... - Ceiling on state budget primary spending: ... 342 850 ... 67 ... ### IMF Press Release No. 10/335 — First review and disbursement (September 10, 2010) - The IMF completed the first review under the Stand-By Arrangement (SBA) with Greece and approved a disbursement of an amount equivalent to SDR 2.16 billion (about €2.57 billion). - Total disbursements under the SBA after this review: SDR 6.97 billion (about €8.28 billion). - The SBA: 3-year, SDR 26.4 billion (about €30 billion), approved May 9, 2010; part of a cooperative package with Euro area member states amounting to €110 billion over three years. - The SBA entails exceptional access to IMF resources, amounting to more than 3,200 percent of Greece’s quota, and was approved under the Fund's Emergency Financing Mechanism procedures. ### Executive Board and IMF comments (Mr. Murilo Portugal, Deputy Managing Director and Acting Chair) - All quantitative performance criteria for end-June were met, and major structural reforms are ahead of schedule. - Emphasis on continued rigorous program implementation, supported by large-scale international financial support, and securing public consensus for reforms. - Fiscal strategy is on track; continued tight expenditure control and monitoring will be key, particularly at sub-national levels. - Authorities are determined to strengthen tax administration and reduce tax evasion to secure revenues and promote fairness. - Restoring competitiveness and boosting potential growth is critical; impressive progress in structural reforms including a far-reaching pension reform approved by parliament and substantive labor market reform underway. - Priority recommendations: opening closed professions, moving forward with deregulation, implementing the services directive, eliminating barriers to tourism and retail trade. - Liquidity in banks remains tight but manageable, supported by the ECB and the government’s guarantee program. - The new Financial Stability Fund provides an important back-stop for capital adequacy. - Authorities commissioned a strategic review for the banking sector and a due diligence for state banks; continued close monitoring of the financial sector is important. ### Statement by Panagiotis Roumeliotis, Alternate Executive Director for Greece (September 10, 2010) - Joint EC/IMF/ECB mission (July 26–August 4) concluded Greece achieved impressive budgetary consolidation in the first half of 2010 and remarkable progress in major structural reforms. - Fiscal program progress: all budgetary criteria for June 2010 met; all fiscal measures planned for 2010 adopted. - Financial policies strengthened: Financial Stability Fund established; collection and processing of fiscal data improved. - Economic outlook projections and estimates: - Contraction of economic activity estimated at about 4 percent in 2010. - GDP projected to decline by 2.6 percent in 2011. - Growth expected to resume in 2012 to 1.1 percent, then to 2.1 percent in 2013 and 2014. - Bank of Greece estimates for 2010: total employment will fall by 2¼-2½ percent; unemployment rate may increase to above 12 percent. - HICP inflation expected to approach 4.8 percent by end of 2010; total impact of higher indirect taxation estimated at 2.9 percentage points. - Current account: revised upward in 2010; in January-June 2010 current account deficit rose year-over-year by 0.2 percent. - Oil bill increased by 23.4 percent in January-June 2010. - Exports of goods excluding oil and ships fell by 4.9 percent; imports fell by 8.7 percent. - Bank of Greece cash-basis estimates, January-August 2010: - Central government net borrowing requirements fell by 28.0 percent (year-over-year). - Ordinary budget revenues rose by 3.5 percent. - Ordinary budget primary expenditure fell by 13.6 percent. - Interest payments rose by 7.1 percent. - Public investment spending fell by 32.8 percent. - Fiscal targets and corrective measures: - Program objective: reduce fiscal deficit to below 3 percent of GDP by 2014; debt-to-GDP ratio beginning to stabilize by 2013 and decline thereafter. - Joint EC/ECB/IMF mission projects general government deficit will decline to 7.9 percent of GDP in 2010 (instead of initially projected 8.1 percent). - Government committed to keeping state budget primary spending below the original program ceiling and taking additional corrective action as needed, including curtailing domestically-financed investment. - Authorities agreed to limit spending by €4 billion below earlier program projections to cover risks from other parts of general government. - Authorities stand ready to take corrective actions if fiscal outcomes fall below targets. - Pension reform and long-run fiscal impact: - New pension reform approved introducing a new defined-contribution system to top-up a non-contributory, means-tested, basic pension. - Reform reduces long-run increase in pension costs from 12.5 percentage points by 2060 under the old system to 2.5 percentage points of GDP under the new system. - Tax and fiscal management reforms: - Tax reform aims to make the system more progressive by abolishing tax exemptions, fighting tax evasion, and broadening the tax base. - Steps taken: promoting payment receipts; cross-checking tax information with data on wealth and spending habits, especially of high-income and wealthy taxpayers. - New law strengthens fiscal management framework: 2011 budget will be part of a three-year rolling medium-term framework; Minister of Finance will be able to control the local government and social budget. - Health sector measures: - Accelerated payments to avoid arrears; reduced procurement prices of pharmaceuticals by 20 percent via price caps for approved drug lists; limited unnecessary prescriptions. - Accounting firms placed in state hospitals to improve financial management. - Local government and state enterprise reforms: - New bill to reduce number of local administrations and reduce their budget by €500 million in each of the three years during 2011-2013. - Reforms in state enterprises: enhance efficiency, increase tariffs in public transportation, reduce excessive allowances and overtime, reduce state guarantees and attendant fiscal risk. - Draft law to restructure the railway sector to be discussed in Parliament by end-September; implementation expected to produce cost reductions and make the train operator profitable for 2011. - Financial sector policies and support: - Banking sector liquidity tight but manageable; all banks comply with minimum capital adequacy requirement of 8 percent. - In August private deposits stabilized after earlier declines. - CEBS stress tests covered more than 90 percent of banking system assets; all but one bank passed. - Authorities committed to providing a new tranche of government guarantees for bank bonds in the amount of €25 billion. - Financial Stability Fund law approved by Parliament; preliminary due diligence requested to formulate a program to enhance financial stability and efficiency. - Structural policies and competitiveness reforms: - Legislation introduced to ease employment protection legislation and collective dismissals, reform minimum wages, and allow firm-level agreements to prevail. - Measures to reform collective bargaining: eliminate automatic extension of sectoral agreements to those not represented and introduce symmetry in arbitration. - Three-year national general collective wage agreement signed July 15: - Average annual increases of minimum wages: 1.7 percent in 2010 (exclusively because of 2009 carryover), 0.8 percent in 2011, and 1.5 percent in 2012. - In real terms, developments result in a bigger wage cut than assumed in the MoU. - Bank of Greece estimates unit labor cost growth in total economy will turn negative (-1.7 to -2.0 percent) in 2010, factoring a fall of 12.8 percent in average earnings of government employees and 9.3 percent in average pensions of government pensioners. - Authorities decided to fully implement the EU Services Directive, liberalize the wholesale electricity market, facilitate start-ups, accelerate authorization of several economic activities, establish a task force to enhance growth impact of EU structural funds, and take measures to facilitate FDI and investments in innovation and public-private partnerships. - Commitment to eliminate restrictions (licensing requirements, geographic restrictions, regulated tariffs, etc) for entry into professions including pharmacy, notary, architecture, engineering, etc. *Source: IMF staff report update and Press Release No. 10/335 (September 10, 2010).* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10286.pdf_