## _cr1257

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---

### I. Program request, political economy, and objectives
- Greek authorities requested a new 4 year Extended Arrangement with evenly phased purchases and notified the Fund of their cancelation of the existing SBA.
- Coalition government assumed power in November 2011; leaders of the two main coalition parties committed to the objectives and main policies of the program.
- Program objectives (as first defined in the Stand-By Arrangement):
  - (i) restore competitiveness and growth;
  - (ii) restore fiscal sustainability;
  - (iii) secure financial stability.
- IMF request and proposed access:
  - Staff proposes access to Fund resources equivalent to SDR 23.7853 billion, or 2,158.8 percent of quota (€28 billion).
  - Initial disbursement of about €1.65 billion; purchases evenly phased (Table 20: SDR 1,399.1 per review; total 23,785.3 SDR).

### II. Macroeconomic developments and outlook
- Depth of recession and recent performance:
  - Real GDP has declined by more than 13 percent since 2009.
  - Growth in 2012 projected in the -4½ to -5 percent range (MEFP ¶3).
  - Recovery expected quarter-over-quarter in 2013; moderate cyclical component in 2014–16.
- Inflation and competitiveness:
  - Mild deflation in 2012-14 (in the 0 to -1 percent range) in the framework, recovering to average European rates later.
  - Deflator-based REER: no improvement since 2009; ULC cumulative improvement targeted at 15 percent by 2015.
- Labor costs and productivity:
  - Total economy ULC have fallen by about 9½ percent since their peak in early 2010.
  - Cumulative 10–12 percent fall in hourly wages and a 7 percent decline in hours worked.
- Current account and external sector:
  - Current account deficit remained close to 10 percent of GDP (recent history), projected to be in balance by late in the decade.
  - Exports (percent of GDP) projected to rise: 2012: 24.8; 2013: 25.9; 2014: 26.8; 2015: 27.7; 2020: 31.8.

### III. Fiscal performance, targets, and measures
- Recent fiscal performance:
  - Cumulative improvement in the primary balance of 8¼ percentage points of GDP between 2009 and 2011.
  - Primary deficit in 2011 was 2½ percent of GDP; long-run debt-stabilizing target is a 1½ percent of GDP primary surplus.
- Program fiscal path and targets:
  - 2012: primary deficit of 1 percent of GDP (accommodates deflationary labor policies).
  - 2013–14: adjustments of 2¾ percentage points of GDP per year to reach a 4½ percent of GDP primary surplus in 2014.
- Measures to meet 2012 target (impact in percent of GDP; selected):
  - New spending measures of about 1½ percent of GDP identified for 2012.
  - Pharmaceutical spending reduction by 27 percent (½ percent of GDP).
  - Pension spending cuts of about 2½ percent (net savings 0.2 percent of GDP).
  - Cuts to operations, subsidies, and investment spending generating savings of 0.7 percent of GDP.
- Additional adjustment through 2014:
  - Some 7 percent of GDP in additional measures needed to attain the 2014 fiscal target (MEFP ¶6).
  - Agreement: beyond fighting tax evasion, new measures should be largely on the expenditure side.
- Baseline and Box 4 highlights:
  - Baseline: primary deficit would stabilize at around 1 percent of GDP absent new measures.
  - Already approved baseline measures include tax base broadening (1¾ percent of GDP), public wage bill reductions (½ percent of GDP), pension reforms (1 percent of GDP), and other spending reductions (1½ percent of GDP).

### IV. Revenue administration and public financial management
- Pre-reform indicators (percentage values from diagnosis):
  - VAT Gap (2006): Greece 30.0; EU-25 average 12.0.
  - Shadow economy (2010): Greece 25.2; OECD, 21 average 13.4.
  - Tax debt to annual net revenue (2009; 2011 estimate): Greece 72.2; OECD average 12.3.
  - Number of verifications to taxpayers (2007): Greece 0.2; OECD average 4.1.
- Operational problems (selected):
  - About 30 percent of VAT returns are not filed or filed late.
  - Income tax returns often false; weak headquarters control; audit methods unsophisticated; resolution of judicial appeals takes 7 to 12 years.
- Reform actions and targets:
  - Medium-term revenue administration reform plan started in 2010; new central units for audits, debt collection, and large taxpayers.
  - Revenue administration reforms organized along three tracks with upfront prior actions (MEFP, Annex III).
  - Targets and performance indicators (Authorities' preliminary data):
    - Collection of past tax debt: Performance to end-December 2011 = €946 million; target end-December 2012 = €2000 million.
    - Collection of assessed taxes and penalties: Large taxpayers performance end-December 2011 = 66 percent; target end-December 2012 = 50 percent.
    - VAT non-filers performance end-December 2011 = 12.8 percent; target end-December 2012 = 20 percent.
  - IT and staffing: plan to double audit capacity of the large taxpayer unit; hire large numbers of auditors; close 200 small local offices by end-December 2012.
- Public financial management (PFM) reforms:
  - Commitment registers roll-out and appointment of permanent accounting officers; target >90 percent of spending coverage by end-June 2012 for new system.
  - Domestic arrears: amounted to 2½ percent of GDP at end-2009; clearance contingent on verification and PFM reforms.

### V. Banking system: PSI impact, recapitalization, liquidity, and resolution
- PSI impact on banks:
  - PSI will trigger impairments of about €22 billion on government bond holdings.
  - System Tier 1 capital was €23.8 billion in September 2011.
  - Regulatory capital wiped out for four banks representing 44 percent of system assets.
- Loan losses and provisioning:
  - Staff stress estimates: system-wide loan losses over a three-year horizon in the range of €30–35 billion (before provisioning and future profits).
  - Nonperforming loans reached 14.7 percent of total loans at end-September 2011.
- Liquidity and deposit run:
  - Greek banks lost close to 30 percent of their deposit base from end-2009 (including 6.4 from end-2011).
  - Eurosystem and ELA support: nearly €130 billion (or 60 percent of GDP) by end-2011; Eurosystem exposure peaked at €103 billion in mid-2011; reliance replaced gradually by ELA.
- Recapitalization strategy and resources:
  - Total bank recapitalization needs and resolution costs estimated at €50 billion (MEFP ¶19).
  - Available/planned funding:
    - About €1½ billion already available through the HFSF.
    - €25 billion made available upfront; €23½ billion made available in June to cover ongoing needs.
  - Banks required to reach Core Tier I (CT1) ratio of 9 percent by end-September 2012 and 10 percent by end-June 2013.
  - Example incentive: threshold for private contributions set at 10 percent of capital needs would require about €3 billion to keep the viable portion of the banking sector in private hands.
- Resolution framework:
  - Separation of functions: resolution with BoG; interim credit institutions (bridge banks) managed by HFSF.
  - HFSF ownership rules, voting rights limitations, and time-limited holdings (sell within two years, extendable by two years).

### VI. Privatisation, asset management, and expected proceeds
- Program targets and timeline:
  - Government committed to selling €50 billion in assets over program lifetime; realistic target to achieve €19 billion in sales by 2015.
  - Revised sale timetable and asset categories (Annex IV style): listed public companies, gaming/digital rights, unlisted public companies, infrastructure, financial sector assets, real estate.
- Progress and constraints:
  - By end-2011, Greece had sold €1.6 billion of public assets (original target €5 billion).
  - Encumbrances: unclear titles, debts, contractual obligations, state-aid issues, and resistance.
- HRADF and governance:
  - HRADF mandated to privatize at prevailing market conditions; must remain insulated from political interference and return proceeds promptly to the government.
- Preparation milestones:
  - Advisors for 2012–13 projects to be in place by March 2012; HRADF to register 3,000 plots by end-June.

### VII. Debt restructuring (PSI), official support (OSI), and DSA outcomes
- PSI key terms and participation (Box 1 and later notes):
  - Offer coverage: initially cited pool €206–€206+ billion; domestic law bonds participation 85.8 percent; with CAC activation €197 billion subject to exchange.
  - Exchange consideration: new bonds with face value equal to 31½ percent of debt exchanged; 15 percent cash-equivalent EFSF notes maturing within 24 months.
  - Nominal haircut: 53½ percent.
  - NPV losses range from 70 to 75 percent (relative to par, given exit yields in the 9–12 percent range).
- Official sector involvement (OSI) assumptions:
  - Euro area member states committed to contribute €144.7 billion to overall financing package through end-2014.
  - Reduction in GLF margin to a uniform 150 basis points; transfer of income accruing on bonds held by national central banks through 2020.
- DSA baseline and projections:
  - Baseline public debt ratio falls to 116½ percent of GDP in 2020.
  - Debt spikes to 167 percent of GDP in 2013 (shrinking economy and incomplete adjustment).
  - External debt: net external debt-to-GDP ratio peaks at 113 percent in 2013 and declines to 72 percent by end-2020.
  - Debt-stabilizing primary balance: 1.5 percent of GDP (Table A1).
- Stress tests and sensitivity:
  - Significant sensitivity to implementation: shortfalls in privatization or fiscal adjustment keep debt at very high levels (example: privatization shortfall to €10 billion realized → debt ~130 percent of GDP by 2020).
  - Tailored downside scenario (combined delays): debt ratio peaks at 171 percent of GDP in 2014; ~145.5 percent by 2020.
- Gross financing needs and program financing:
  - Overall financing need estimated at €164.5 billion during 2012-14 (Table 19).
  - IMF proposed EFF: SDR 23.7853 billion (2,158.8 percent of quota; €28.0 billion) with scheduled purchases in Table 20.

### VIII. Program monitoring, performance criteria, and structural benchmarks
- Quantitative performance criteria (QPCs) and indicative targets (selected):
  - Floor on the modified general government primary cash balance (MGGPCB).
  - Ceiling on State Budget primary spending.
  - Ceiling on accumulation of new domestic arrears by the general government.
  - Ceiling on overall stock of central government debt.
  - Continuous ceiling on accumulation of new external payment arrears.
  - Indicative: floor on privatization proceeds; ceiling on new domestic arrears by entities not covered in the QPC.
- Structural benchmarks (selected timing and goals):
  - End-June 2012: adoption of budget-neutral tax reform; completion of reviews of social spending programs (identify 1–2 percent of GDP) and government operations (identify at least 1 percent of GDP).
  - End-September 2012: adjustment of social security contribution rates and pension measures; completion of strategy for strengthening social security collections.
  - End-December 2012: screening and cleaning legislation for 500 professions (completion target for screening of all professions).
  - End-June 2013: BoG follow-up stress test (Pillar II) based on market values.

### IX. Risks, contingency planning, and staff appraisal
- Key downside risks:
  - External demand muted by eurozone problems.
  - Investor sentiment lagging implementation.
  - Rapid bank deleveraging undermining corporate investment.
  - Fiscal multipliers larger than assumed (multiplier used in program: 0.5).
  - Policy implementation lags due to administrative capacity or social/political unrest.
- Contingency understandings:
  - If revenues underperform or multipliers larger, deeper spending cuts would focus on public wage bill and social transfers (protecting core programs).
  - If yields better than expected, scope could open for mix of deficit reduction and pro-growth tax cuts.
- Staff appraisal (selected):
  - Progress: primary fiscal position improved by some 6½ percent of GDP in two years.
  - Challenges: reform implementation slowed in 2011; competitiveness gap about 15–20 percent; high uncertainty and exceptional risks.
  - Staff supports authorities’ request for an extended arrangement conditional on commitments, PSI completion, and OSI.

### X. Definitions, reporting, and safeguards (technical and operational)
- MGGPCB definition (selected):
  - MGGPCB = MGGCB minus interest payments by the state budget.
  - MGGCB includes cash balances of ordinary state budget and public investment budget, changes in net financial assets of local government, social security, ETERPS, RPEs; minus guarantees called and minus National Wealth Fund spending.
  - Privatization receipts and proceeds from sale of land/buildings excluded from cash receipts for MGGCB.
- Reporting timetables and data provision:
  - Monthly MoF and GAO reporting requirements (monthly, within 3–30 days depending on item); Bank of Greece reporting on banking liquidity weekly/ monthly.
  - TMU defines program accounting, exchange rates, coverage, and data lags.
- Safeguards and capacity to repay:
  - Peak Fund access projected to reach SDR 28.3 billion or 2,570 percent of quota (peak exposure comparable to SBA).
  - Fund safeguards assessment of the Bank of Greece to be updated by first review.
  - Fund credit will be deposited in government’s account at the Bank of Greece.

*Italic: IMF staff report (content unit: _cr1257, extracted sections as provided).*

### 1. Quantitative Performance Criteria ...................................................................................

### 1. Quantitative Performance Criteria

### I. Introduction and program request
- The Greek authorities requested a new 4 year Extended Arrangement with evenly phased purchases and notified the Fund of their cancelation of the existing SBA.
- The coalition government (assumed power in November 2011) was mandated to reach understandings with the EC/ECB/IMF on a new successor arrangement and to complete a PSI deal with private creditors.
- Debt exchange completed; program approval proposed; authorities expected to call elections to establish a new government mandate.
- Political environment: up to five parties garnering double-digit support in recent polls; continuing coalition likely. Leaders of the two main parties in the existing coalition committed to the objectives and main policies of the program.

### II. Progress under the SBA and need for adaptation
- SBA objectives: (i) securing fiscal sustainability; (ii) restoring competitiveness and growth; and (iii) preserving financial stability.
- Performance under the SBA: initially good, but became uneven beginning in late 2010 due to increasing political and social tensions, implementation capacity problems, and strong recessionary headwinds.
- Overall assessment: some progress toward objectives, but unable to realize the ambitious pace of fiscal adjustment and structural reforms; macroeconomic outturns worse than projected; market access not restored as hoped.

### III. Economic setting and historical imbalances
- Post-euro twin structural deficits driven by easy financing and rapid borrowing by private and public sectors (2001–2009).
- Private sector credit almost doubled in percent of GDP between euro accession in 2001 and 2009.
- Government debt rose from 100 to about 130 percent of GDP during 2001–2009.
- Structural primary balance deteriorated from a surplus of 4½ percent of GDP to a deficit of 14¼ percent of GDP.
- REER overvaluation estimated at 20–30 percent in 2009.
- Current account deficit exceeded 14½ percent of GDP in 2007–08.

### IV. Macroeconomic developments since 2009
- Real GDP:
  - Real GDP has declined by more than 13 percent since 2009, significantly undershooting SBA projections.
  - Private investment led the downturn in 2009; public retrenchment started in 2010; private consumption became main recession driver in 2011.
  - Indicators: retail trade volume shrank by around 11 percent year-on-year in the fourth quarter; industrial production declined by 11 percent year-on-year in the fourth quarter; manufacturing PMI near historical lows; industrial new orders declined by 8 percent in the fourth quarter of 2011.
  - Non-oil exports declined in November and December 2011 after earlier robust growth; tourism turnover declined in the fourth quarter; pre-bookings for 2012 below expectations.
- Inflation:
  - HICP inflation only fell below the Euro area average in mid-2011, and has stuck above SBA program projections.
  - Adjustment modest relative to other crisis countries despite deep recession; reflects price rigidities in oligopolistic product and highly regulated service markets and inadequate labor market flexibility.
- Competitiveness and labor costs:
  - Deflator-based REER has shown no improvement since 2009 owing to still high inflation.
  - Total economy unit labor costs (ULC) have fallen by about 9½ percent since their peak in early 2010.
  - Cumulative 10–12 percent fall in hourly wages and a 7 percent decline in hours worked.
  - Productivity growth turned positive only at end-2011 as labor market adjustment gathered speed, but with rapidly rising unemployment.
  - Slow adjustment owes much to wage and price rigidities in labor and product markets.
- Current account:
  - Current account deficit remained close to 10 percent of GDP, well above SBA projections despite deeper recession.
  - Exports low: average share of exports in output about 14 percent of GDP from 2007–11 (excluding shipping).
  - Sharp import compression generally accompanying a crisis has been avoided because of Greece’s participation in a currency union and ECB refinancing availability, allowing significant private consumption smoothing (sharp decline in savings).

### V. Market sentiment and sovereign financing
- Sovereign spreads had risen to almost 10 percent before program inception; narrowed in the first months of the program aided by ECB SMP purchases.
- Worsening fundamentals, adverse data revisions, and calls for a sovereign debt restructuring mechanism led to soaring spreads in late 2010.
- Uncertainty over private sector involvement (PSI) increased spreads and volatility; restoration of market access became unlikely for late 2011/2012.
- PSI developments:
  - Agreement on voluntary PSI reached after months of discussions between Greek authorities and an IIF-led creditor group.
  - Authorities announced key terms of the debt exchange on February 21, 2012; exchange offer closed on March 8, 2012 (short extension for foreign law bonds).
  - ISDA declared a credit event immediately after the exchange; market reaction muted.

### VI. Banking system—solvency, liquidity, deleveraging, and recapitalization
- PSI impact on banks:
  - PSI will trigger impairments of about €22 billion on government bond holdings.
  - System Tier 1 capital was €23.8 billion in September 2011.
  - Regulatory capital wiped out for four banks representing 44 percent of system assets; remaining banks significantly undercapitalized.
- Loan losses and provisioning:
  - Preliminary staff stress estimates point to system-wide loan losses over a three-year horizon in the range of €30–35 billion (before provisioning and future profits).
  - Nonperforming loans reached 14.7 percent of total loans at end-September 2011, concentrated in corporate and SME sectors.
- Liquidity:
  - Greek banks lost close to 30 percent of their deposit base from end-2009 (including 6.4 from end-2011).
  - Outflows driven by private dissaving and capital flight to safe-havens (about a quarter of withdrawals).
  - Euro system provided nearly €130 billion (or 60 percent of GDP) in support by end-2011.
  - Eurosystem exposure peaked at €103 billion in mid-2011; reliance gradually replaced by Emergency Liquidity Assistance (ELA) from the Bank of Greece.
  - ELA imposes additional costs (higher interest and fees than ECB window) but remains an inexpensive form of financing for banks.
- Deleveraging and credit contraction:
  - Banks sold non-core foreign assets (realizing €950 million in sales of loan portfolios), cut claims on foreign financial institutions, and reduced security holdings.
  - Total credit declined since mid-2010; sole proprietors and consumer credit fell by -6½ percent in 2011; corporate credit turned negative as of September 2011.
  - Surveys suggest tight credit supply and lack of trade credit are main constraints, creating a negative feedback loop.
- Capital raising efforts:
  - Efforts (liability management, issuing preferred shares to the state in exchange for PSI-exempt government bonds, recapitalization by foreign parents) raised approximately €4.3 billion of Core Tier 1 capital.
  - A merger between Alpha Bank and EFG Bank was called off by Alpha Bank.
- Policy shift:
  - Authorities shifted from backstopping private banks to strengthening recapitalization and resolution framework.
  - HFSF established in 2010 as capital backstop for viable banks; authorities introduced additional resolution tools in Q4 2011 (purchase and assumption transactions, bridge banks) and planned greater funds for recapitalization.

### VII. Fiscal developments and structural fiscal issues
- Primary balance:
  - Greece achieved a cumulative improvement in the primary balance of 8¼ percentage points of GDP between 2009 and 2011.
  - Drivers: VAT, income and property tax increases, cuts in wages, pensions, and public employment.
  - Primary deficit in 2011 was 2½ percent of GDP, falling short of initial program target for 2011 by some 1½ percent of GDP.
  - Long-run debt-stabilizing target is a 1½ percent of GDP primary surplus (current outcome well below).
  - 2011 performance: slight shortfall (a ¼ percent of GDP overrun versus the revised overall deficit target); ongoing arrears problems and weak social contribution compliance.
  - Final 2011 data due in April; risk of upward revisions in arrears and general government deficit.
- Structural fiscal challenge:
  - Greece spends about as much as other Euro area countries (relative to GDP), but revenue ratio remains well below other European countries.
  - Problem traced to poor direct tax collections (narrow base, widespread tax evasion).
  - Massive deterioration in underlying fiscal position largely attributed to expansion of social spending (health and pension expenditures) of over 6 percent of GDP.
  - Since 2009, authorities have raised total revenues and cut total spending, but no progress in lifting direct tax collections.
  - Pension reform undertaken with beneficial long-term impacts, but limited reductions in existing social transfers so far.

*Source: IMF staff report (content unit: 1. Quantitative Performance Criteria).*

### 8.      Strengthening of fiscal institutions is well underway, but is proving to be a

### Strengthening of fiscal institutions is well underway, but is proving to be a complex and time-consuming task

### Revenue administration: diagnosis and reform progress
- Greece entered the crisis with a dysfunctional revenue administration. Problems affect all stages of the collection process.
- Key performance and structural indicators (percentage values):
  - VAT Gap (2006): Greece 30.0; EU-25 average 12.0
  - Shadow economy (2010): Greece 25.2; OECD, 21 average 13.4
  - Tax debt to annual net revenue (2009): Greece (2011 estimate) 72.2; OECD average 12.3
  - Number of verifications to taxpayers (2007): Greece 0.2; OECD average 4.1
- Major operational problems noted:
  - About 30 percent of VAT returns are not filed or filed late
  - Income tax returns are usually false with very low levels of income returned
  - Weak headquarters: does not control and direct resource usage, has not developed strategies to address compliance risks and cannot monitor compliance
  - No taxpayer services; little management of taxpayer segments and very underdeveloped large taxpayer administration
  - Audit methods are unsophisticated; auditor workforce is eroded
  - No risk-based selection of cases to audit (all returns to be audited by law)
  - Limited gateways for collection of information from third parties
  - Few resources devoted to collection of tax arrears; low collection of assessed tax and penalties
  - No independent administrative tax dispute process; easy access to judicial appeal system and suspensions of collection action
  - Resolution of judicial appeals takes 7 to 12 years
- Reform actions and outcomes:
  - In 2010, the authorities started to implement a medium-term revenue administration reform plan.
  - New central units established for audits, debt collection, and large taxpayers.
  - Significant implementation delays: long delays in hiring auditors and establishing basic operational functions such as collection enforcement.
  - Audits of large taxpayers fell below the 2011 annual targets, and the quality of audits remained low.
  - Limited political support and strong institutional resistance have contributed to delays.
  - Overall, gains from the reforms have been modest to date.

### Revenues and expenditures (Greece vs EU average, in percent of GDP)
- Revenue series (in percent of GDP):
  - 2001: Revenue 40.9
  - 2008: Revenue 40.7
  - 2009: Revenue 38.0
  - 2010: Revenue 39.5
  - 2011: Revenue 41.0
  - EU avg. 2008-10: Revenue 44.3
- Revenue subcomponents (in percent of GDP):
  - Indirect taxes: 13.3 (2001); 12.4 (2008); 11.3 (2009); 12.0 (2010); 12.7 (2011); EU avg. 2008-10: 12.8
  - Direct taxes: 8.6 (2001); 8.0 (2008); 8.3 (2009); 7.7 (2010); 8.3 (2011); EU avg. 2008-10: 12.7
  - Social contributions: 12.6 (2001); 13.2 (2008); 12.7 (2009); 13.1 (2010); 12.4 (2011); EU avg. 2008-10: 13.9
  - Non-tax and other: 6.5 (2001); 7.0 (2008); 5.7 (2009); 6.7 (2010); 7.7 (2011); EU avg. 2008-10: 5
- Expenditure series (in percent of GDP):
  - Total expenditure: 45.3 (2001); 50.6 (2008); 53.8 (2009); 50.2 (2010); 50.3 (2011); EU avg. 2008-10: 49.6
  - Wages: 10.4 (2001); 12.0 (2008); 13.4 (2009); 12.1 (2010); 12.0 (2011); EU avg. 2008-10: 10.9
  - Social benefits: 15.4 (2001); 19.6 (2008); 21.1 (2009); 20.8 (2010); 21.6 (2011); EU avg. 2008-10: 20.7
  - Other current spending: 7.3 (2001); 8.1 (2008); 8.9 (2009); 7.7 (2010); 6.7 (2011); EU avg. 2008-10: 11.1
  - Interest: 6.5 (2001); 5.1 (2008); 5.1 (2009); 5.8 (2010); 6.9 (2011); EU avg. 2008-10: 2.7
  - Investment: 5.8 (2001); 5.7 (2008); 5.2 (2009); 3.9 (2010); 3.1 (2011); EU avg. 2008-10: 4.3
- Note: Averages for sub-categories of expenditure refer to the 2008-09 period.

### Public financial management (PFM): problems and reform steps
- Problems observed across the spending process:
  - Budgeting:
    - Budget process focused on the year ahead, with no medium-term budgeting
    - Fiscal planning confined to central government
    - Disjoined budget processes at central and general government level
    - No central control on general government budgets
  - Commitment controls:
    - Commitments not checked against budget appropriations
    - No central control of commitments
    - Budget execution focused on verifying payments
  - Invoice and payment:
    - Payment of invoices delayed due to cumbersome checking procedures involving different institutions (Fiscal audit office, court of audit)
    - Controls mainly compliance-oriented
  - Reporting:
    - Limited real-time monitoring of arrears and pending bills
    - No collection of payment information at non-central government level
    - Reporting focus on central government with no in-year reporting for general government entities
- Manifestations and recent developments:
  - Domestic arrears amounted to 2½ percent of GDP at end-2009.
  - In 2010 the authorities adopted a new budget framework law and started putting in place spending control and comprehensive fiscal reporting mechanisms.
  - Commitment-based controls are becoming operational, with appointments of permanent accounting officers in line ministries and improved reporting from commitment registers.
  - Reporting participation (as of November referenced data): about 40 percent of line ministries and central services and about 60 percent of other general government entities reporting data.
  - Arrears remained a problem in 2011.
  - Fiscal reporting has improved, but lack of detailed data for general government entities remains an issue.
  - Limited progress reflects implementation problems, inadequate resources (relative to the increasing needs created by the crisis) and the complexity of the reforms.

### Privatization program and structural reform implementation
- Privatization:
  - Greece launched a very ambitious privatization program to help support growth and debt reduction, but work remains in an initial stage.
  - Asset preparation revealed frequent encumbrances: unclear titles and ownership, debts, complicated contractual obligations, state-aid issues, and resistance by incumbents and/or related parties.
  - Market uncertainty about the outcome of the PSI process caused a drying-up of interest since late last year.
  - Progress made on preparing important assets: state lottery, the gas corporation, the land of the old Athens airport (Hellenicon), and gaming company OPAP, slated to be brought to the point of sale in 2012.
  - By end-2011, Greece had sold €1.6 billion of public assets (compared to the original privatization target of €5 billion).
- Structural reforms:
  - Authorities developed a comprehensive structural reform agenda aimed at reducing rigidities in the labor market, liberalizing services, and improving the business environment.
  - Implementation weakened due to capacity constraints, lack of a management structure overseeing the reform process, and resistance from vested interests.
  - Delays in secondary legislation (regulated professions, licensing, strengthening the competition authority) repeatedly frustrated timelines.
  - Adverse economic circumstances (business investment dependent on financing and macroeconomic stability) reduced near-term results.
  - Notable legislative progress in late 2011: legislation to eliminate automatic extension of sectoral labor agreements to all firms in a sector.
  - Early results from the labor reform: 81 firm-level agreements (covering 28,000 employees) signed between November 2011 and January 2012.

### Strategy, scenarios, and macroeconomic framework
- Program objectives (as first defined in the Stand-By Arrangement):
  - (i) restore competitiveness and growth;
  - (ii) restore fiscal sustainability; and
  - (iii) secure financial stability.
- Assessment of distance to objectives:
  - Competitiveness gap still measured at around 15–20 percent of GDP
  - A financial system that must be brought back to solvency
  - A primary fiscal deficit almost 4 percent of GDP below the debt-stabilizing level of primary surplus
- Strategy recalibration:
  - Experience shows Greece lacks the capacity for rapid, full and effective implementation of deep productivity-based reforms within a short time horizon.
  - Alternative of euro exit would be very costly: rapid devaluation could severely impair the financial system, trigger deposit outflows requiring controls, cause a steep fall in domestic activity, and carry a high risk Greece would not settle into a good steady state.
  - Judgment in favor of another effort to implement adjustment within the euro is held strongly by Greece and its European partners.
- Shift to prioritizing internal devaluation:
  - With productivity channels too uncertain and sluggish, unit labor cost improvements must be realized primarily through nominal wage reductions, requiring removal of labor market rigidities.
  - Policy implications of the switch:
    - (i) effective execution should help pull forward recovery, but it will be deflationary;
    - (ii) the impact on fiscal consolidation must be addressed (downwardly rigid expenditures would delay deficit improvements);
    - (iii) added impact on the financial system must be addressed (as incomes fall, loan quality will suffer);
    - (iv) product market structural reforms need to be accelerated (to convert wage to price competitiveness, and to reduce the impact on real incomes);
    - (v) the core social safety net must be strengthened to protect the most vulnerable.
  - Political resolve and bold front-loaded reform implementation are critical for internal devaluation to work.
- Debt relief and long-term transfers:
  - Given Greece’s high debt levels, resolving its balance of payments problem within the euro will require debt relief and long-term transfers from European partners.
  - Scaling the nominal economy back to competitive levels will drive up the debt ratio; long-term European support at low interest rates—or on more concessional terms if conditions worsen—would help succeed in adjustment and ensure debt remains sustainable.
  - European leaders have explicitly committed to provide financial support on adequate terms to backstop Greece’s return to market access.
- Macroeconomic framework considerations:
  - Structural versus cyclical factors:
    - Greece’s recession is modeled as mainly structural: resource reallocation will make obsolete parts of the physical and human capital stock, and protracted unemployment will likely erode skills.
    - Some potential for cyclical recovery, particularly in manufacturing and services (tourism, transport, communication).
    - Manufacturing: production of consumer durables and capital goods at only 50 percent of pre-crisis output level.
    - Service sector: output declined by almost 20 percent from its 2008 peak.
    - Medium-term potential growth could reach 2 percent per year through 2020; long-run potential growth expected to fall to around 1–1½ percent per year.
  - Policy settings and multipliers:
    - Program assumes an overall fiscal multiplier of 0.5.
    - Labor market reforms expected to represent a drag in the near term as incomes fall.
    - Transmission example: a 25 percent reduction in the minimum wage to reduce average wages in the total economy by 5 percent; about three years under the new collective bargaining framework assessed to deliver an additional impact of the same magnitude.
    - For each 5 percent reduction in average wages, the result is expected to be a 3 percent cumulative reduction in the deflator over three years, all else equal.
  - External conditions and investor sentiment:
    - Domestic consumption expected to be suppressed for some time; external demand and investor sentiment crucial to sustainable recovery.
    - Outlook for demand in Greece’s trading partners taken from preliminary spring 2012 IMF WEO forecasts.
    - Investment projected to track increases in external demand and increases in the profit share, and to follow successful program implementation (encouraging repatriation of capital and FDI).
    - Bank liquidity conditions are not anticipated to be an independent source of disturbance to firms’ investment plans, as bank funding from the ECB has been programmed in line with expected macro developments.

*Source: _cr1257 - 8.      Strengthening of fiscal institutions is well underway, but is proving to be a complex and time-consuming task (PDF chapter/section).*

### 17.      The interplay of these factors is expected to extend the recession in the near

### _cr1257 - 17.      The interplay of these factors is expected to extend the recession in the near

### Near-term outlook and recovery
- The interplay of fiscal adjustment, labor market reforms, and other factors is expected to extend the recession in the near term, but a moderate recovery could emerge during the first half of 2013 (MEFP ¶3).
- Growth projections:
  - Growth in 2012 would be in the -4½ to -5 percent range.
  - The recovery would begin quarter-over-quarter in 2013 and benefit from a moderate cyclical component in 2014–16.
- Price movements:
  - Framework built on mild deflation in 2012-14 (in the 0 to -1 percent range), followed by slow recovery to average European rates as Greece’s output gap is eliminated in the second half of the decade.
- Competitiveness and current account:
  - Competitiveness on a ULC basis should be restored by 2015 (a cumulative improvement in ULC of 15 percent).
  - On a price basis this could take 5–7 years longer.
  - The current account is expected to be in balance by late in the decade, reflecting debt restructuring (on interest payments), competitiveness improvements (on the trade balance), and fiscal adjustment (on domestic absorption).

### Comparative adjustment profile
- Greece’s adjustment is expected to profile between extremes seen under rigid exchange rate regimes, with comparators including Baltic cases, early 2000s Germany, and early 1980s Netherlands.
- Relative performance:
  - Despite a sharper initial fiscal adjustment, Greece’s slump has not been as deep as in the Baltics but is projected to be more prolonged.
  - Labor market and external account adjustments have proceeded more gradually in Greece but are expected eventually to catch up with Baltic comparators.
  - Employment losses in Greece are expected to far exceed those suffered by Germany and the Netherlands during their adjustment periods.
  - Disinflation has been delayed and is expected to be less pronounced than in Baltic comparators, owing to indirect tax hikes and entrenched product and service market rigidities.

### Downside and upside risks
- Significant downside risks remain:
  - External demand could be muted by continued problems in the eurozone.
  - Investor sentiment could lag program implementation.
  - Bank deleveraging could proceed more rapidly than envisioned, undermining corporate investment.
  - Fiscal multipliers could be larger given the closed nature of the economy, absence of an interest rate reaction channel, and depressed output.
  - Policy implementation could lag or fall short due to administrative capacity constraints or renewed social and political unrest.
  - A failed export-driven recovery could give way to a deeper recession with import compression binding external financing.
- Upside:
  - Faster-than-forecast adjustment of wages, prices, and/or productivity could bring forward stronger competitiveness and a stronger recovery.

### Debt sustainability under the new financing package
- Under the new financing package involving deep PSI and highly concessional official support, debt would be sustainable in the medium term, albeit with risks (MEFP ¶4; Appendix I).
- Public debt:
  - Baseline projections indicate the debt ratio would fall to 116½ percent of GDP in 2020.
  - Debt spikes to 167 percent of GDP in 2013 due to the shrinking economy and incomplete fiscal adjustment.
  - Once fiscal adjustment, growth restoration, and privatization receipts occur, steady reductions in the debt ratio commence.
  - Stress tests show full and timely program implementation is critical; incomplete fiscal adjustment, large privatization shortfalls, or delays in structural reform would keep debt at very high and likely unsustainable levels.
- External debt:
  - Baseline projections suggest net external debt-to-GDP ratio would peak at 113 percent of GDP in 2013 and rapidly decline to 72 percent of GDP by end-2020.
  - External debt is set on a sustainable medium-term trajectory primarily due to current account improvements, which reach a sustainable deficit by 2015 and switch to a positive balance by 2019 (trade balance already in surplus after 2015).
  - The deep PSI haircut and additional OSI support from Euro area member states have an important impact.
  - The trajectory is sensitive to shocks; a combined structural reform implementation shock could leave debt unsustainably high.

### Fiscal policy path and targets
- Understandings on fiscal consolidation (MEFP ¶5):
  - 2012: Accommodates deflationary labor market policies by allowing a primary deficit of 1 percent of GDP (1¼ percent of GDP below the target established under the 5th Review under the SBA).
  - 2013–14: Adjustments of 2¾ percentage points of GDP per year projected to bring the primary balance to the new target of 4½ percent of GDP in 2014 (½ percent of GDP lower than at the time of the 5th SBA review).
  - Staff favored a longer adjustment period given demand effects from structural reforms and weaker European prospects; authorities argued longer delays risk credibility.
  - Pace remains very ambitious; Greece achieved a primary balance of this size during 1999–2000.

### New measures and spending-side priorities
- New spending measures for 2012:
  - Authorities identified new spending measures of about 1½ percent of GDP to secure the 2012 fiscal target (MEFP ¶6-7).
  - 2012 fiscal position benefits from measures including a broadening of the PIT base by almost 2 percent of GDP.
  - Key new measures:
    - Reduction in pharmaceutical spending by 27 percent (½ percent of GDP) to lower average drug prices.
    - Cut in pension spending of about 2½ percent, with focus on higher main and supplementary pensions (net savings 0.2 percent of GDP).
    - Extension of wage grid reforms to special wage regimes (judges, diplomats, political appointees, doctors, professors, police, armed forces) to save about 0.1 percent of GDP (net of revenue losses).
    - Cuts to operations, subsidies, and investment spending generating savings of 0.7 percent of GDP.
  - Legislative changes and a supplementary budget will be implemented as prior actions for the program (see MEFP, Annexes I and II).
- Additional adjustment through 2014:
  - Some 7 percent of GDP in additional measures will be needed to attain the 2014 fiscal target (MEFP ¶6).
  - Baseline forecasts (no new measures) show a 2014 primary deficit of about 1 percent of GDP, short of the 4½ percent of GDP target.
  - The needed measures account for fiscal multipliers.
  - Agreement: beyond fighting tax evasion, new measures should be largely on the expenditure side, focused on large measures that are easy to implement and monitor given capacity constraints.

### Spending reviews and structural benchmarks
- Deeper review required to identify 5½ percent of GDP toward total adjustment through 2014 (MEFP ¶7):
  - Review expected to be completed by June 2012, with preliminary results for the 2013 budget cycle and the 2013–16 medium-term budget.
  - Identification and enactment of these measures required to complete the first review and continued Fund support.
  - With deep cuts planned to public wage bill and operational spending and need to preserve public investment, additional cuts must come from reducing the size of government and overall social transfers, balanced by strengthening the core safety net.
- Focus areas (structural benchmarks and targets):
  - Review of social benefit programs (proposed structural benchmark for end-June):
    - Non-pension social benefits are complex, unequally distributed (e.g., 60 percent of family benefits go to the top 40 percent of the income distribution), and poorly targeted.
    - Authorities to identify 1–2 percent of GDP in additional savings, focusing on discontinuing non-essential programs and improving targeting.
    - Largest potential savings via replacing most existing programs with a single, income-tested minimum income scheme targeted at the bottom 20 percent of the income distribution (with presumptive income to control evasion).
    - Some savings—targeted at ½-1 percent of GDP—would be reinvested in strengthening core programs (e.g., unemployment benefits).
  - Review of government operations (proposed structural benchmark for end-June):
    - Greek public administration described as highly fragmented, overlapping structures, lacking coordination and adequate IT systems.
    - By end-June 2012, the authorities intend to complete a review expected to identify savings of at least 1 of GDP.
    - Experience elsewhere shows restructuring can yield efficiency dividends of 1–3 percent of GDP.
    - Focus: restructuring central and local administration, closing/downsizing general government units, outsourcing functions, identifying redundant staff.
    - Authorities committed to 15,000 mandatory separations for redundant staff by end-2012.
    - Review to encompass defense spending.
  - Pension spending review:
    - Remaining 1–2 percent of GDP in savings would need to come via cuts in pensions.
    - Earlier reforms reduced long-term costs but did less for the near term.
    - Pensions projected to rise 0.6 percent of GDP above the European average by 2015 as the economy returns to potential at a more competitive price level.
    - Government plans reforms to eliminate arrears and deficits in lump pension funds.
    - Some cuts could be achieved without reducing pensions in real terms as economy deflates, but further real cuts will be necessary, targeted at higher income pensioners to equitably distribute the real burden of adjustment.

### Tax reform and revenue administration
- Tax measures and revenue targets:
  - Reforms of the tax system and revenue administration expected to contribute 1½ percent of GDP to the adjustment (MEFP ¶8).
  - Bulk of gains expected from better tax collection, particularly from the relatively affluent self-employed.
  - Gains are back-loaded and aligned with economic recovery; programmed to be 1½ percent of GDP over 2013–14.
  - Budget-neutral tax reform aims to simplify the tax system, broaden the base, and rebalance tax burdens to support fairness and growth.
  - Possible reform elements identified: elimination of several tax exemptions and preferential regimes, simplification of VAT and property tax rates, more uniform treatment of individual capital income, replacement of the Code of Books and Records with simpler legislation.
  - Authorities plan public consultation and to present a reform proposal for parliamentary approval by June 2012 (proposed structural benchmark).
- Fiscal institutional reforms and revenue administration tracks:
  - Fiscal institutions need strengthening to improve revenue collection and expenditure control (MEFP ¶11).
  - VAT collection efficiency gains to EU average could increase revenue by 1½–3 percent of GDP.
  - E-procurement in the health sector has produced current expense reductions in spending units (up to 40 percent).
  - Revenue administration reforms will be organized along three tracks (MEFP ¶12) with several upfront prior actions (see MEFP, Annex III).

### Contingency plans and implementation risks
- Contingency understandings (MEFP ¶9):
  - If revenue collection underperforms or fiscal multipliers prove larger, deeper spending cuts would be needed to align government spending with willingness to pay and income.
  - Focus would be on adjustments in public sector wage bill, social transfers (protecting core social programs), and rationalization of other spending including national defense.
  - If yields are better than expected, scope could open for a mix of additional deficit and debt reduction and pro-growth tax cuts.
  - Any tax cuts would need careful calibration to support macro adjustment (e.g., indirect tax cuts could act as a fiscal “revaluation,” working against internal devaluation; social contribution rate cuts would support internal devaluation and growth).

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

### introduction of function-based organizational structure; a code

### introduction of function-based organizational structure; a code

### Revenue administration reforms
- Strengthening enforcement:
  - Authorities committed to arrest the long tradition of amnesties and incentive schemes and reversed an amnesty introduced in early January.
  - Actions taken include:
    - (i) better deployment of existing anti-money laundering tools in the fight against tax evasion;
    - (ii) strengthening the tax-dispute resolution system to speed up case processing;
    - (iii) amending legislation to discourage unsubstantiated judicial appeals (taxpayers must now demonstrate inability to pay in order to be able to access appeals without paying).
  - A formal performance review system will be established to assess managers and remove underperforming staff.
- Strengthening efficiency of tax administration operations:
  - (i) strengthen headquarters functions and independence (increase delegation of administrative powers from the political level, matched with stronger headquarters control over local tax office operations);
  - (ii) overhaul internal controls and the anti-corruption framework;
  - (iii) consolidate far-flung operations (first step: closing 200 small local offices by end-December 2012 as new central IT systems are gradually deployed);
  - (iv) raise capacity to perform key functions (e.g., doubling the audit capacity of the large taxpayer unit, hiring a large number of additional auditors, devoting more staff to collection enforcement and streamlining dispute resolution).
  - Deeper institutional reforms will be assessed in the coming months.
- Extending reforms to social security collection:
  - Upfront measures include expanding the use of monthly declarations, piloting unified collection of large tax and social contribution debts, and enacting common tax and social contributions audits of large taxpayers.
  - A fully-fledged reform plan drawing on external assistance will be articulated by end-September 2012 (structural benchmark).

### Public financial management reforms
- Three pillars to durably correct an arrears problem (MEFP ¶13):
  - Improvements in budgeting and budget monitoring:
    - Focus on (i) more rigorous procedures for preparing the medium-term budget; (ii) streamlining processes for within-year supplementary budgets; (iii) better monitoring and control of the implementation of the social budget.
  - Spending controls:
    - Implement three steps: (i) finalize roll-out of commitment registers to all units and to the investment budget; (ii) enact sanctions for non-reporting; (iii) gradually devolve financial responsibility to accounting officers to control commitments and oversee financial operations and fiscal reporting.
    - As controls improve and arrears stemmed, government indicated it will release a special central budget allocation to public entities, provided for in the program, to gradually clear past (verified) arrears claims.
  - Fiscal reporting:
    - Plan to collect more detailed revenue and spending data from all general government entities; the new system is expected to cover more than 90 percent of spending by end-June 2012.

### Performance indicators and targets (program monitoring)
- Semi-annual performance indicators (structural benchmarks for end-June and end-December 2012) cover revenue administration and public financial management reforms.
- Targets include intermediate outputs and final outcomes; authorities agreed to double achievements in targeted revenue administration areas compared to 2011 and to fully roll out planned spending control mechanisms.
- Selected statistics and targets (Authorities' preliminary data):
  - A. Audits
    - Full audits of large taxpayers: Performance to end-December 2011 = 2/4475 300 ; Targets to end-December 2011 = ? ; Targets to end-December 2012 = ? (table entries present formatting anomalies in source).
    - VAT audits of large taxpayers: Performance to end-December 2011 = 2/57225325 (source formatting as provided).
    - Audit of high wealth individuals: Performance to end-December 2011 = 404400 ; Targets to end-December 2012 = 1,300.
  - B. Collection
    - Collection of past tax debt: Performance to end-December 2011 = €946 million; Targets to end-December 2011 = €300 million; Targets to end-December 2012 = €2000 million.
    - Collection of new tax debt accumulated in 2012 (New): Targets to end-December 2012 = ......20 percent.
    - Collection of assessed taxes and penalties from new audits:
      - Large taxpayers: Performance to end-December 2011 = 66 percent; Targets to end-December 2011 = 20/30 percent; Targets to end-December 2012 = 50 percent.
      - High wealth individuals: Performance to end-December 2011 = 47.5 percent; Targets to end-December 2011 = 20/30 percent; Targets to end-December 2012 = 50 percent.
      - VAT non-filers: Performance to end-December 2011 = 12.8 percent; Targets to end-December 2011 = 20/30 percent; Targets to end-December 2012 = 20 percent.
  - Public Financial Management
    - Percent of spending units reporting data from commitment registers: 90 percent (target); In December 2011, 31 percent of units reported data from commitment registers.
    - Discrepancy in fiscal arrears reported by commitment registers and monthly surveys: 1 percent (target); In October 2011, the discrepancy was about 37 percent.
- Past practice and weaknesses noted:
  - Very few full scope audits historically, mostly of large taxpayers; most audits verified specific items in tax returns.
  - Historically weak debt collection rates (e.g., less than 1 percent for fines and penalties).

### Financial sector policies: objective and strategy
- Objective: Restore banking system stability (MEFP ¶16) after PSI operation and recession severely reduced bank capital; recession and deflation will further impact loan quality.
- Strategy discussed elements:
  - (i) refine timeline for bank resolution and recapitalization;
  - (ii) introduce necessary support elements of the resolution and recapitalization strategy into the legal framework;
  - (iii) ensure adequate resources for recapitalization and liquidity needs;
  - (iv) strengthen governance of the financial oversight framework for stewardship of program funds.

### Timeline and milestones for recapitalization and resolution (MEFP ¶17)
- Five milestones:
  - First: thorough assessment of total capital needs—capturing PSI losses, expected private loan losses identified by BlackRock, and other Pillar II risks (prior action).
  - Second: by end-March, perform an in-depth assessment of viability of banks’ business plans and evaluate eligibility for recapitalization against viability criteria (proposed structural benchmark). A detailed plan for addressing one state-owned bank (ATE) will be finalized (prior action).
  - Third: banks will submit capital plans and by end-April 2012 viable banks will be given time to raise fresh capital in the market.
  - Fourth: by end-September 2012, viable banks are expected to be recapitalized through a combination of private and, where necessary, public funds.
  - Fifth: by end-June 2013, a follow-up stress-testing exercise will be performed with a Pillar II stress test based on market values (proposed structural benchmark).
- Safeguards and supervisory measures:
  - Bank of Greece will intensify monitoring (including placing a supervisor in undercapitalized banks), assess bank restructuring plans required by European Commission state-aid, and introduce requirements for recovery and resolution plans (RRPs) for all banks.

### Capital requirements, recapitalization instruments, and resolution framework
- Capital requirements:
  - Banks required to reach a Core Tier I (CT1) capital ratio of 9 percent by end-September 2012, and 10 percent by end-June 2013.
  - Banks must hold Pillar II capital buffers to meet a CT1 ratio of 7 percent under an adverse scenario for loan losses over the next three years; assessment based on BlackRock exercise and mitigating factors; capital add-ons to capture additional risks may be applied.
- Recapitalization instruments and incentives for private participation:
  - Public component to be done via common shares, with voting rights of the state (via the HFSF) temporarily restricted where private sector materially contributes.
  - Example: a threshold for private contributions set at 10 percent of capital needs across banks would require about €3 billion to keep the viable portion of the banking sector in private hands.
  - Private shareholders will be given an option to purchase the government’s stake.
  - Contingent convertible bonds allowed up to an amount scaled to the Pillar II requirements from the BlackRock diagnostic.
  - HFSF to retain voting rights for strategic decisions (e.g., asset sales, mergers) to contain asset stripping.
- Resolution framework:
  - Functions for resolution and systemic restructuring separated: resolution remains with the BoG; a new department in the HFSF will handle interim credit institutions (bridge banks).
  - HFSF must sell its stake in an interim credit institution within two years, extendable by two years for financial stability reasons; given outlook for 2014, an extension will almost certainly be required for holdings in many banks.
- Managing resolution costs:
  - Authorities committed to least-cost resolution, with two qualifications:
    - (i) all deposits would be protected;
    - (ii) the Eurosystem’s refinancing exposure would be protected (central bank would claim its collateral with any residual claim remaining in a “bad bank,” and the fiscal authority recapitalizing the central bank as necessary).
  - Procedures adjusted to ensure conservative valuation of assets transferred to new banks and more flexibility in handling labor contracts during resolution.
- Framework for managing non-performing loans:
  - Authorities committed to prepare during Q2 2012 possible changes to legal framework to facilitate restructuring of non-performing loans with international expert input and in line with EC/ECB/IMF advice.
  - Guiding principles: target interventions in line with fiscal and financial sector capacity; preserve payment culture and avoid strategic loan defaults; maximize asset recovery; facilitate market distinction between rehabilitation of viable borrowers and efficient exit of non-viable borrowers.

### Resources, liquidity support, and projections
- Recapitalization and resolution needs (MEFP ¶19):
  - Total bank recapitalization needs and resolution costs to be financed under the program are estimated to amount to €50 billion.
  - Available and planned funding:
    - About €1½ billion is already available through the HFSF;
    - €25 billion will be made available upfront to deal with recapitalization needs arising from the PSI and the estimated funding gap due to resolutions;
    - €23½ billion will be made available in June to cover projected ongoing recap and resolution needs, and to backstop Pillar II needs.
  - Funding most likely in the form of short-term EFSF bonds, held in an escrow account until utilized.
  - Availability of funding expected to allow continued access to central bank credit and help convince host regulators in countries with Greek subsidiaries not to intervene in those subsidiaries.
- Liquidity support (MEFP ¶20):
  - Availability of funds in an escrow account and rapid recap/resolution decisions should allow continued assistance from the BoG in the form of ELA (requires a government guarantee, but given the framework for recap and resolution such a guarantee is in any event redundant).
  - Over time, Greek banks will need to gradually extricate themselves from dependence on the Eurosystem in an orderly fashion.
  - Medium-term funding plans will be updated after completion of the PSI and recapitalization and restructuring exercise to ensure gradual unwinding of exceptional liquidity support is consistent with program’s macroeconomic, fiscal, and financial framework.
  - Preliminary staff projections suggest it could take several years until Eurosystem exposures are reduced to the Eurosystem average, even accounting for significant reductions once banks are recapitalized and become more liquid.
  - Reduction in Eurosystem exposure built on a recovery of private sector deposits starting in 2014 and gradual restoration of market access over the next two to three years (banks expected to be able to re-access markets before the sovereign, mainly due to their high capitalization and low sovereign exposures post-recapitalization).

### Strategy divergence and Greece-specific implications
- Strategy departs from usual international practice owing to Greece-specific circumstances:
  - Typical recapitalization would use government bonds and unwind unviable banks with losses fiscalized over time; in Greece this was not possible due to need to secure Eurosystem liquidity support and reassure host regulators of Greek bank subsidiaries.
  - Implication: overall program financing rises significantly in the near term, facilitating a large and rapid reduction in Eurosystem exposure to Greece, perhaps in the order of €50–60 billion (including repayment of Eurosystem holdings of government bonds).
  - Temporary recapitalization of viable banks using new government bonds (in exchange for common shares) could be a useful approach in the event of earlier-than-expected recapitalization needs.

*Italic: IMF staff summary extracted from the PDF chapter titled "introduction of function-based organizational structure; a code"*

### 36.      Governance arrangements in financial oversight agencies will be strengthened

### 36.      Governance arrangements in financial oversight agencies will be strengthened

### Governance reforms for financial oversight agencies
- Rationale: The scale of public resources committed to reconstituting and recapitalizing the banking system suggests that decisive actions to improve governance are a matter of priority (MEFP ¶21–22).
- Prior actions and agreed understandings (the first two constitute prior actions for the program):
  - HFSF:
    - (i) measures to strengthen the independence and the professional capacity of its Board;
    - (ii) accountability through the introduction of more efficient and transparent operating guidelines;
    - (iii) safeguards against political influence.
    - Given the large amount of funds entrusted to the HFSF by Euro area member states, internationally reputable independent experts will be appointed, and all members will have to be approved by the Euro Working Group (EWG).
  - Deposit Insurance Fund (the HDIGF):
    - (i) revisions to investment guidelines to gradually eliminate re-deposits in covered banks;
    - (ii) clarification of the status of the HDIGF as privileged creditor to ensure it does not impinge on claims secured with financial collateral;
    - (iii) strict limitations on individuals actively involved in credit institutions on becoming HDIGF Board members (to limit any conflicts of interest).
  - Bank of Greece:
    - Measures to address potential conflicts of interest in the execution of its public policy functions.
    - Voting powers of private shareholders will be restricted.
    - Collegial decision making at the level of executives as well as internal oversight by non-executives in the General Council will be introduced.
    - Timing: Authorities aim to implement the actions as early as possible during 2012—the BoG may convene a shareholder meeting as early as April—but the actions are proposed as a structural benchmark for end-December 2012 (to ensure that organizational reform will not get in the way of managing the bank resolution).

### Privatization: targets, timeline, and preparation
- Policy objective: Transfer a significant share of state assets to the private sector (MEFP ¶23).
- Expected benefits:
  - Create a basis for new investment, productivity enhancements, growth, and employment, including through real estate development and improvements in existing enterprises.
  - Help reduce public debt by an estimated ½ percent of GDP through 2020, saving Greece about 1 percent of GDP per year in interest.
  - Improve enterprise performance, broaden the tax revenue and employment base, and reduce the fiscal adjustment burden.
- Revised target path and commitments (MEFP ¶24 and Annex IV):
  - Government remains committed to selling €50 billion in assets (comprised of various state enterprises, infrastructure, concessions, and real estate).
  - Given weak market conditions and preparation time, more realistic target: achieve €19 billion in sales by 2015.
  - Full €50 billion in assets would be sold by 2022.
  - This scale and pace is reflected in the 5th SBA Review DSA and is broadly in line with a number of previous privatization programs.
  - Authorities will prepare quarterly updates of the expected value of proceeds over a rolling two-year-ahead timeframe and stand ready to identify and prepare further assets to close any asset or net proceeds gap.
- Program table (values as estimated at the beginning of the privatization program):
  - No. of objects
  - Estimated value 
  - (in billions)
  - Timeframe during which 
    sold
  - Total
  - 50.0
  - Listed public companies113.42012-2015
  - Gaming/digitial rights72.12012-2015
  - Unlisted public companies132.92012-2015
  - Infrastructure126.42012-2015
  - Financial sector assets ...16.02012-2016
  - Real estate 491.02012-2020
  - Real estate land70,00018.22012-2022
- Preparation focus (MEFP ¶25–26, Annex IV):
  - Remove legal uncertainties and/or restructure assets.
  - Fill in public policy and regulatory policy gaps.
  - Obtain EC clearances (procurement, competition, and state aid).
  - Prepare and run tenders and obtain necessary by-law approvals.
  - For real estate, define and acquire permits for zoning and land-planning.
  - Given lead times up to two years, all advisors for the 2012–13 projects would need to be in place by March 2012, and clearance processes for administrative bodies in Greece and the EU set in motion as soon as possible.
  - The new EU Taskforce has been requested to assist with setting up several regulatory frameworks and bodies, as necessary.
- Insulation from political pressures (MEFP ¶27):
  - Independent privatization fund (HRADF) set up in July 2011 has a mandate to privatize assets at prevailing market conditions as soon as technically feasible, and in an open and transparent manner.
  - HRADF should return all proceeds received to the government without delay.
  - HRADF must remain insulated from political interference and be provided with unencumbered assets with all attached voting rights.
  - Political sensitivities could still enter through difficulties in obtaining cooperation from ministries/localities or interference in assigning new Boards in firms to be privatized; program design emphasizes preparing assets for sale to handle these risks.

### Structural reforms: labor, product markets, business environment, and reform management
- Overall objective: Restore competitiveness and economic growth by stepping up the pace and depth of structural reforms (MEFP ¶28).
- Labor market reforms (MEFP ¶29):
  - Aim to eliminate the gap in unit labor costs relative to trading partners, estimated at about 15 percent, over the next three years.
  - Identified problems: ineffective collective bargaining system; high minimum wage relative to competitors; high non-wage labor costs relative to competitors.
  - Reforms already taken include elimination of automatic extension of sectoral agreements.
  - Package of reforms (Box 5) was legislated as a prior action; a second stage of non-wage labor cost reductions proposed as a structural benchmark for end-September 2012.
  - Authorities will monitor effects with participation of social partners and support of the ILO; consider further measures if competitiveness improvements remain elusive by end-year (e.g., staff viewed a suspension of the 13th/14th monthly salaries as one way to deliver an upfront reduction in all relative wages).
- Product and service market reforms (MEFP ¶30):
  - To achieve price-based competitiveness gains, labor reforms must be matched by rendering prices more flexible.
  - Ambitious service sector liberalization focused on professional services, transportation, and electricity.
  - Literature suggests potential TFP gains over time of 1–1½ percentage points per year for successful wide-ranging reforms.
  - In February, authorities ended the transition period for liberalization of road haulage; subsequent efforts will proceed in phases.
  - Prior action: screen and amend existing legislation for 20 economically important professions (e.g., medical professions, accountants, actuaries, temporary employment agencies, among others).
  - Structural benchmark: complete screening and cleaning of legislation for all 500 professions by end-December 2012.
  - Authorities will further identify remaining rigidities in product markets using the OECD’s competition toolkit and define an action plan.
- Business environment reforms to facilitate investment and exports (MEFP ¶31-32):
  - Identified constraints: lengthy and costly procedures for permits, licenses, export-import requirements; excessive bureaucracy; corruption; opaque tax and labor regulations; lengthy judicial procedures.
  - Specific actions:
    - Fast-track investment framework: A new law (expected by end-March) will generalize the framework to more investments and lower fees and financing requirements to address hold-ups in qualification and financing for large projects.
    - Exports and customs procedures: A new law will simplify export legislation and set the stage for implementing an electronic export window and e-customs by end-December 2012.
    - Licensing: Two new laws passed in 2011 reduced time and requirements for licenses, but secondary legislative acts remain; authorities will prioritize remaining decisions and decrees to complete them by end-December 2012.
    - Judicial reforms: A new law passed in early-March 2012 to address case backlog and speed up court proceedings; plan to publish court data to set up a performance framework for courts and to reform the Code of Civil Procedure over the medium term.
- Structural reform management and monitoring (MEFP ¶33):
  - Implementation problems stem from lack of a framework overseeing reforms, leading to fragmented efforts, coordination difficulties, and delays.
  - Authorities recognized the need to urgently implement the legislated directorate of planning, management and monitoring of reforms and to start publishing key performance indicators on a quarterly basis (starting with end-March).
  - Implementation supported by extensive technical assistance from the EC’s Task Force (including judicial reform, liberalizing closed professions, and identifying rigidities in product markets).

### Financing: program financing strategy and IMF support
- Financing strategy purpose (MEFP ¶35–36):
  - Provides Greece with breathing room to address deep structural problems.
  - Assumes Greece will only gradually re-access international capital markets at long maturities and sustainable rates.
  - Continued official financing by Euro area member states and deep PSI will play a crucial role; the IMF is intended to play a catalytic role.
- Estimated financing needs and composition (MEFP ¶35) (Tables -19):
  - Overall financing need estimated at €164.5 billion during 2012-14.
  - Additional €8–21 billion during 2015-2016:Q1 (depending on progress in restoring market access).
  - Financing need includes PSI and bank recapitalization costs, additional fiscal needs from called government guarantees, arrears clearance, deposit build-up, and any residual debt service.
- Requested support:
  - Euro area member states committed to contribute €144.7 billion to the overall financing package through end-2014.
  - Greek authorities requested a 4-year Extended Arrangement under the Extended Fund Facility (EFF) to succeed the three-year Stand-By Arrangement approved on May 9, 2010.
  - Staff proposes access to Fund resources in an amount equivalent to SDR 23.7853 billion, or 2,158.8 percent of quota (€28 billion), with an initial disbursement of about €1.65 billion.
  - Subsequent phasing of amounts committed would be quarterly with an even profile to match actions undertaken by Greece throughout the program period (Table 20).

*Source: _cr1257 - 36.      Governance arrangements in financial oversight agencies will be strengthened*

### 49.      Financing assurances are in place for the new program (MEFP ¶36). The

### _cr1257 - 49.      Financing assurances are in place for the new program (MEFP ¶36). The

### Financing assurances and program scope
- Euro area member states have committed to provide adequate financing to cover residual needs during the program period beyond proposed Fund commitments.
- Eurogroup (February 21st) confirmed commitment to provide adequate support to Greece during the period of the Greek policy program and beyond for as long as it takes for Greece to regain market access, provided that Greece fully complies with the requirements and objectives of the program.
- The successful conclusion of the PSI operation, launched by the Greek authorities on February 24 (a prior action), is expected to deliver a substantial reduction in gross financing needs under the program.
- Greece’s gross financing needs are expected to remain sizable after the program, and market access, on sustainable terms and in sufficient volume, is expected to be restored only gradually during the post-program period.

### Prior actions and political assurances (upfront actions)
- Prior actions (three macro-critical areas; see MEFP Table 2):
  - Fiscal sustainability:
    - Implementation of all overdue measures from 2011.
    - Legislation of additional measures to reach the 2012 deficit target (including a supplementary budget).
    - Measures to secure revenue administration improvements.
  - Recovery of competitiveness:
    - Improvements in functioning of the labor market (reforms to collective bargaining, adjustments to wage floors, reduction in non-wage labor costs).
    - Advancements in liberalization of restricted professional services.
  - Financial stability:
    - Completion of the first step in the resolution/recapitalization process (assessments of banks’ capital needs and completion of the study addressing ATE).
    - Strengthening of legal and regulatory framework to support resolution and recapitalization.
    - Strengthening governance of financial sector oversight agencies.
- Political assurances:
  - Broad parliamentary support via large majority vote for a framework law capturing the ad referendum MEFP.
  - Public commitments to program objectives and key policy measures by current leaders of PASOK and New Democracy; expectation that one or both parties likely to be involved in a post-election coalition.

### Program monitoring, reviews, quantitative performance criteria, and structural benchmarks
- Quarterly reviews:
  - Proposed on a quarterly basis; first and second reviews proposed on or after May 31 and August 31, 2012.
- Quantitative performance criteria (QPCs) (MEFP Table 1):
  - Floor on the cash primary balance of the general government with an adjustor for any special budget allocation for clearance of arrears.
  - Ceiling on state budget primary spending.
  - Ceiling on the accumulation of new domestic arrears by the general government (where monitoring feasible).
  - Ceilings on the stock of central government debt, and on new guarantees granted by the central government.
  - Continuous ceiling on the accumulation of new external payment arrears by the general government.
  - Indicative targets: floor on privatization proceeds; ceiling on new domestic arrears by entities not covered in the QPC.
- Structural benchmarks (MEFP Table 3):
  - Fiscal area (end-June 2012):
    - Adoption of a budget-neutral tax reform to broaden the tax base and achieve a fairer distribution of the tax burden.
    - Completion of reviews of social spending programs and government functions.
    - Meeting these benchmarks is an overarching condition for completing the first program review.
  - Fiscal-institutional reform (end-June and end-December 2012): quantified indicators of revenue administration and public financial management reforms.
  - Restoring competitiveness:
    - Reduction in unit labor costs through adjustments to social security contribution rates by end-September 2012.
    - Full liberalization of services by completing screening and cleaning of existing legislation by end-December 2012.
  - Restoring financial sector stability:
    - By end-March 2012, strategic assessment of the banking sector by the BoG and issuance of a ministerial decree with technical details of banks' recapitalisation framework.
    - By end-December 2012, reform of governance arrangements in the BoG.
    - By end-June 2013, a new stress test exercise by the BoG.

### Exceptional access assessment and criteria
- The new program satisfies the substantive criteria for exceptional access, but with little to no margin; assessment premised on:
  - Full implementation of authorities’ policy undertakings to launch the new program.
  - Successful completion of the upcoming debt exchange.
  - Credible securing of OSI commitments.
- Criterion 1:
  - Greece is experiencing or has potential exceptional balance of payments pressures; exceptional Fund financing beyond normal limits alongside European financing is required.
- Criterion 2:
  - Rigorous analysis indicates a high probability that public debt is sustainable in the medium term is difficult to assert categorically due to significant uncertainties; exceptional access is justified given high risk of international systemic spillover.
  - Debt reduction expected through private and official sector debt relief, fiscal adjustment, and privatization.
- Criterion 3:
  - Greece currently lacks market access. Prospect of regaining market access exists after implementing reforms, restoring growth, and reducing debt ratio.
  - Post-program market borrowings initially assumed to be restored only gradually, at short maturity, and with interest rates that could destabilize debt dynamics if borrowing were large.
  - Authorities expected to avoid large issuances and to continue availing official financing committed by Euro area member states, conditional on Greece’s adherence to program policies, to catalyze market re-access.
- Criterion 4:
  - Program provides reasonably strong prospect of success, but policy implementation risks remain very high due to political instability, social pressures, and administrative capacity constraints.
  - Prior actions, assurance letters by main coalition parties, parliamentary endorsement, and technical assistance from the EC and the Fund increase confidence in policy continuity and monitoring, but high implementation risks persist.

### Capacity to repay the Fund and safeguards
- Peak Fund access during the program period projected to reach SDR 28.3 billion or 2,570 percent of quota.
- This level is consistent with the total access level approved under the SBA.
- Standard indicators of Fund exposure will remain elevated, at the very upper end for exceptional access cases.
- Risks to the Fund reduced by agreed OSI/PSI debt relief; reduction in debt expected to place debt on a sustained downward path upon completion of the program strategy.
- Capacity to repay depends critically on:
  - Authorities’ ability to deliver the reforms.
  - Responsiveness of the economy to the reform package.
  - Willingness of Euro area member states to provide financing after the program on terms and amounts adequate to backstop timely repayments to the Fund (they have committed to do so, conditional on adherence to program policies).
- Additional safeguards: Fund’s de facto preferred creditor status.
- Safeguards assessment:
  - Staff initiated an update of the safeguards assessment of the Bank of Greece (MEFP ¶38); assessment expected to be completed by the time of the first review.
  - IMF funds will be deposited in the government’s account at the Bank of Greece.

### Macro and policy risks, and mitigating factors
- Key risks:
  - If policy implementation is delayed or falls short, or fiscal multipliers are higher, a deeper recession and a much higher debt trajectory could result.
  - Continued political and social instability (e.g., during the election period) could jeopardize commitments, potentially requiring additional public sector debt relief and/or leading to default on bonded debt.
  - Though Greece is committed to the euro, prolonged recession could change that stance with material impact on policies and creditors.
- Mitigating factors:
  - Contingency plans defined to cover responses to shortfalls in program implementation (fiscal and labor market measures).
  - European partners’ commitment to support Greece on adequate terms and for as long as needed, conditional on program adherence.
  - Financing package has greatly reduced debt service, reducing default risk.
  - Deep reduction in banks’ exposure to government bonds (via the financial sector strategy) reduces risk of system insolvency and loss of access to Eurosystem refinancing support even in event of a default after PSI.
  - Political risks partially contained through upfront assurances and parliamentary endorsements.
- Nevertheless, a high level of risk will remain because of the ambition embedded in the program and likely tests of political and social resolve.

### Staff appraisal: progress, challenges, and priorities
- Progress over the last two years:
  - Primary fiscal position improved by some 6½ percent of GDP despite a deep and prolonged recession.
  - Structural fiscal reforms begun to address high public wages and employment, unsustainable pension system, and narrow tax bases.
  - Growth-enhancing structural reforms have started to reduce bureaucratic impediments to investment and inflexible labor markets.
- Remaining challenges:
  - Reform implementation slowed in 2011; structural reforms largely stalled during the second half of 2011.
  - Current account deficit of nearly10 percent of GDP after four years of recession indicates continued lack of competitiveness.
  - Large primary fiscal deficit signals ongoing fiscal sustainability problems.
  - Retaining broad political support for reforms is crucial.
- Restoring competitiveness:
  - Main challenge; requires deep structural change while remaining in the eurozone.
  - Authorities must engineer a large internal devaluation through available tools, including standing up to vested interests opposing wage and price adjustments.
- Labor market liberalization:
  - Unit labor costs have been falling too slowly, contributing to high unemployment and deepening recession.
  - Decision in late 2011 to suspend extension of sector-level collective agreements is promising.
  - More ambitious realignment of wages and productivity is needed for earlier supply response.
  - Government measures to restore balance to collective bargaining, adjust minimum wage closer to competitors, and begin reducing payroll taxes show resolve.

*Source: IMF staff projections.*

### 61.      Labor market reforms must be complemented by other structural reforms to

### _cr1257 - 61.      Labor market reforms must be complemented by other structural reforms to

### Structural reforms and competitiveness
- Product and service market liberalization is an area where the previous program failed to make sufficient headway.
- Progress is imperative to help convert wage to price competitiveness and to protect real wages as the labor market is liberalized.
- Authorities must continue to focus on facilitating investment by removing red tape and by privatizing assets.
- Higher investment in the tradables sector, to expand capacity, is vital to reap the gains from stronger competitiveness.

### Fiscal adjustment and policy priorities
- Significant fiscal adjustment still lies ahead after two years of deep adjustment; there is no more low-hanging fruit.
- Further progress requires structural fiscal reforms touching on politically difficult areas.
- Significant and politically difficult cuts in social transfers and public employment will be needed, while strengthening core elements of the social safety net to protect the most vulnerable.
- End-June 2012 is identified as the critical point at which these reforms should be more fully mapped out and enacted where feasible; doing so will be a condition for the first review going forward.
- Greece’s ability to maintain public services commensurate with European norms and preserve fairness depends on the ability of the government to improve tax collection.
- Greece has benefitted from much technical assistance in tax collection; further progress is reliant on political commitment to enforce tax payments.

### Financial sector support, recapitalization, and resolution
- The financial sector will require unprecedented public support to cope with the impact of losses on government exposures and recession.
- Support needs to balance protecting taxpayer’s money and avoiding government interference in day-to-day bank management.
- The recapitalization strategy is designed to achieve this balance; the government’s continued respect for the division between ownership and management is imperative.
- Recapitalization will help restore banking system liquidity.
- In the interim, the Bank of Greece should extend support to banks that have a credible recap plan and time to raise capital from markets.
- Gradual withdrawal of exceptional support remains critical looking forward.
- The framework for bank resolution and recapitalization must be strengthened to enable timely and least cost resolution of troubled banks, preserve depositor confidence, and contain fiscal impacts.
- Existing stakeholders, including employees, must not be afforded privileges that raise costs.
- Staff welcomes steps to separate supervision, resolution, and systemic restructuring responsibilities; eliminate potential conflicts of interest in the deposit insurance fund; assure the full independence of the HFSF; and assure professional expertise of its staff.

### Debt dynamics, PSI, program horizon, and risks
- Even if fully implemented, the program will take a decade or longer to fully address Greece’s competitiveness problem.
- High debt levels, deep structural problems, and an uneven track record mean full restoration of market access at sustainable interest rates will likely go well beyond the horizon of the program.
- Gradual access is expected on terms and in a scale and timing adequate to enable Greece to repay the Fund, contingent on continued program implementation.
- Constraints on program design (limitations placed on the PSI exercise and protections afforded to the ECB in bank restructuring) increase the adjustment burden on Greece.
- Commitment by Greece’s European partners to continue to provide support until market access is restored, provided Greece implements and adheres to program policies, is crucial for program prospects and for limiting risk to the Fund under the baseline scenario.
- The PSI agreed at the outset represents the largest pre-default sovereign haircut on record but covers only about 57 percent of the total debt stock.
- Due to PSI coverage and additional bank recapitalization costs, debt will remain high.
- The DSA is based on ambitious fiscal and privatization targets and on a reinvigoration of structural reforms; these will stretch the social fabric and political determination to confront vested interests.
- If policy implementation slows or the economy fails to respond rapidly enough, completion of reviews may require additional support from European partners on more concessional terms and/or another restructuring of bonded debt.
- Euro area member states and the ECB should stand ready to put in place guarantees and assurances needed for Greece to maintain access to liquidity support from the Eurosystem.

### Program assessment and conditional support
- The new program is described as a bold step in the right direction but is subject to exceptional risks given the challenges and the track record.
- Debt is projected to remain at extreme levels throughout the program period and beyond, with a range of upward risk factors; a return to external viability will be very protracted.
- Considerable risks remain about the Greek political system’s ability to reinvigorate reforms and deliver the structural changes needed for competitiveness inside the eurozone.
- The program offers a framework to organize and explain necessary changes across multiple policy dimensions.
- Staff welcomes commitments from political parties supporting the present coalition to continue the objectives and policies of the new program.
- On the basis of government policy commitments, significant contributions from the private sector via the PSI operation, strengthened and long-term commitments of Greece’s European partners, and full appreciation by stakeholders of program risks, staff can support the authorities’ request for an extended arrangement.

### Box 1 — Debt exchange: key terms and outcomes
- Offer coverage: €177 billion of Greek law bonds (GGBs), €.8 billion of foreign law bonds, and €9.5 billion of performing state enterprise debt guaranteed by the Greek government.
- Bonds held by the eurosystem (under the ECB’s SMP and national central banks’ investment portfolios) were excluded from the offer.
- Exchange consideration: (i) new bonds with a face value equal to 31½ percent of the face amount of the debt exchanged and (ii) cash-equivalent EFSF notes maturing within 24 months for 15 percent of the face value of the debt exchanged.
- New bonds issued in 20 separate tranches with staggered bullet maturities (equivalent to a synthetic bond with a 30 year maturity and 10-year grace period).
- Coupon schedule: fixed-rate annual coupon of 2 percent up to 2015, 3 percent up to 2020, 3.65 percent in 2021, and 4.3 percent thereafter.
- Participating bondholders receive GDP-linked securities with a notional amount equal to the face value of the new bonds; securities detachable and, beginning in 2015, will deliver up to 1 percent of their notional amount in case real GDP growth and nominal GDP exceed specified targets.
- Proposed legal terms would link repayments of the new bonds to EFSF repayments (i.e., on the €30 billion loan provided by the EFSF for financing the cash incentives), entailing a common paying agent and pro rata debt service payments.
- New bonds include a negative pledge covenant, an aggregated collective action clause (CAC) in line with the new EU standards, and will be subject to English law and jurisdiction.
- On the debt exchange settlement date, participating bondholders will receive short term EFSF notes in discharge of all unpaid interest accrued up to February 24, 2012 on exchanged bonds.
- Nominal haircut: 53½ percent.
- NPV losses range from 70 to 75 percent (relative to par, and given exit yields in the 9–12 percent range).
- Domestic law bonds: 85.8 percent participated and voted in favor of the exchange; authorities decided to activate collective action procedures, pulling in remaining holdouts.
- With activation, €197 billion in debt will be subject to the exchange.
- Authorities extended the exchange offer period for foreign law bonds to March 24 to secure additional participation.

### Box 2 — Potential economic impact of Euro exit
- Short-run macro dynamics: GDP could contract by more than 10 percent in the first year, with a significantly larger decline in domestic demand.
- Inflation consequent on devaluation would reduce the real value of private sector savings (pass through could be contained by the deep recession).
- Payment system disorganization, contract uncertainty, and widespread litigation could bring economic activity to a halt for some time.
- The financial system, with huge ECB exposure, would be badly damaged; liquidity and credit would dry up, with high default, exchange rate, and liquidity risk premia.
- Over time, provided exchange rate pass-through is contained and civil order restored, depreciation would encourage recovery in the tradable sector including manufacturing and tourism.
- Post-exit external debt burden would soar; sovereign debt under domestic law would likely be converted at a one-to-one exchange rate, while foreign-law sovereign debt would surge in terms of the new national currency.
- Default would be inevitable, followed by deep restructuring of private and bilaterally-held government debt to restore sustainability.
- Direct spillovers: modest given Greece’s relative size; default would affect foreign creditors to financial and corporate sectors and could affect competitors (e.g., in tourism).
- Indirect spillovers: more important — market perceptions of Euro area stability would suffer; investors would attach increased probability to the possibility of additional Euro exits.
- Use of blunt instruments (deposit freezes, capital controls) could spook depositors and investors in other weak Euro area countries, triggering preemptive deposit runs and capital flight.
- Bank deleveraging to reduce risks could lead to self-fulfilling crises in vulnerable countries with domino effects to others.
- Box 2 figures and tables referenced: REER, real GDP, GDP deflator paths; Greece: Net International Investment Position, 2011 (in billions of Euro); various investment flows and net I.I.P. totals as shown in the source tables and charts.

### Box 3 — International experience with internal devaluation
- Internal devaluations are almost inevitably associated with deep and drawn-out recessions under fixed exchange rate regimes.
- Duration of initial adjustment periods has ranged from 5 quarters (Hong Kong) to 15 quarters or more (Argentina before abandoning convertibility).
- Depth of downturn varied from shallow growth recessions (Germany, Netherlands) to deep economic collapse with devastatingly high unemployment and emigration (Latvia).
- Income inequality often increases during adjustment, aggravated by cuts in social transfers, education, and health spending.
- Restoring competitiveness via internal devaluation has few successes; outright exchange rate devaluations usually recover faster.
- Preconditions for successful internal devaluation include: an open economy with high factor mobility; high degree of wage and price flexibility; close economic integration within the currency area and either a well-developed central transfer system or a limited welfare state; bold upfront public spending measures backed by strong popular and political support; a low initial public debt ratio and strong resolve to rein in fiscal gaps; risk-mitigating policies limiting private sector leverage and promoting well-capitalized financial sectors; and beneficial external circumstances.

*Italic: IMF staff report content as provided in the supplied PDF chapter.*

### Box 3. International Experience with Internal Devaluation (concluded)

### Box 3. International Experience with Internal Devaluation (concluded)

### Key findings on internal devaluation
- Internal devaluation is bound to be a painful process even where enabling conditions exist.
- Despite deep nominal declines in wages and pensions, real effective exchange rate depreciations have been regularly only modest due to only limited pass-through to prices (Baltic states, Argentina, Greece).
- Private sector corporations are more likely to cut employment than to fully adjust wages, even in fairly flexible labor markets (Latvia).
- Resource reallocation from the non-tradable to the tradable sector takes a long time; persistent skill mismatches and lack of increased investments in the tradable sector preclude full factor reallocation (former East Germany, Latvia).
- External adjustment typically works predominantly through import compression rather than an expansion of exports—and oftentimes imports contract long before any real depreciation of the exchange rate.
- Deterioration in asset quality and large increases in non-performing loans indicate balance sheet effects occur under internal devaluation as incomes fall but debt service does not; these effects materialize more slowly than they do after outright exchange rate devaluation.

### Argentina 1998–2002: illustrative case of failure then rapid recovery
- Argentina ended convertibility in January 2002, almost four years into a deep recession that saw a 20 percent cumulative loss in output.
- The recession culminated in sharp increases in interest rates, bankruptcies, unemployment, and poverty; deep cuts in wages and pensions; deteriorating asset quality; and deposit runs.
- The banking system collapsed and economic activity came to a virtual standstill in the first quarter of 2002.
- One quarter later the economy embarked on a rapid and sustained recovery, achieving 8.5 percent average real GDP growth over the following six years.
- The pre-recession output peak was exceeded after three years.
- Despite a large and permanent real depreciation of more than 50 percent and a significant price boom in Argentina’s agricultural export products during this period, net exports contributed positively to GDP growth only in 2002, before turning negative again in the following years.

### Implications for Greece
- Country cases provide perspective on potential macroeconomic dynamics in Greece, but Greece’s initial conditions look unfavorable compared with prior international experience.
- At the onset of the crisis Greece combined:
  - double-digit fiscal and current account deficits;
  - a high level of public debt;
  - a highly negative international investment position;
  - a small export base;
  - deeply ingrained structural rigidities in labor, product, and service markets; and
  - a tense and unstable political and social setting.
- These conditions suggest political resolve and bold front-loaded reform implementation are absolutely critical for internal devaluation to work in Greece.
- Continued large-scale official support will be needed to alleviate the painful adjustment process.

---

### Box 4. The 2012–14 Fiscal Baseline

### Baseline projection
- Under baseline forecasts, the primary deficit would stabilize at around 1 percent of GDP, well short of the 4½ percent of GDP primary surplus target.
- Projected baseline developments reflect: the cyclical evolution of the economy, structural pressures in the budget, and already-legislated measures.

### Cyclical and structural pressures (channels)
- Shift in the composition of GDP (½ percent of GDP):
  - Excess absorption is projected to fall as the current account adjusts.
  - Consumption (taxed on average at  percent) is projected to decline from 75 percent of GDP in 2011 to 63½ percent in 2020.
  - Internal devaluation will lead to an increase in operating profits (taxed at 10 percent on average).
- Social security (½ percent of GDP):
  - Internal devaluation will lead to a decline in wages feeding through to social security contributions.
  - Pension benefits are frozen in nominal terms, creating a gap in the social security system.
  - Other wage-related taxes are affected as well (wages are taxed at 52 percent on average).

### Already approved measures in the baseline
- Tax base broadening (1¾ percent of GDP):
  - Revenue yields in 2012–13 are expected to benefit from: (i) the elimination of personal income tax exemptions and reduction of the tax free threshold, both legislated in 2011 and (ii) the elimination of specific preferential VAT regimes (e.g. for restaurants) and excise treatments (e.g. on heating oil).
- Reductions in the public wage bill (½ percent of GDP):
  - Employment attrition rules (1:5 for hiring) and mandatory separations are expected to lead to the departure of 150,000 employees over 2012–15 (22 percent of the public labor force).
  - The recently approved reform of the public sector wage grid will reduce wage cost between 2012 and 2015 by about 0.3 percent.
- Pension reforms (1 percent of GDP):
  - Reductions in main and supplementary pensions approved end-2011 will fully roll out their impact in 2012 and the application of new review criteria for disability pensions are expected to have an impact over the next few years.
- Other spending reductions (1½ percent of GDP):
  - Gains are to be realized through a variety of small measures rationalizing social programs, central government operations (including entities closure), defense operational spending, and SOEs restructuring.

---

### Box 5. Labor Market Reform

### Reform objective
- Aim: close the relative ULC gap over the next three years, while protecting employment.

### 1. Structural measures to improve collective bargaining functioning
- Limiting the length and “after effects” of collective contracts:
  - New changes will specify:
    - (i) a maximum duration of three years for all collective contracts;
    - (ii) expiry within one year of contracts in place for 24 months or more after the law is adopted;
    - (iii) a grace period after a contract expires of three months; and
    - (iv) once the grace period expires, cessation of all allowances except for seniority, child, education, and unhealthy conditions.
- Removing ‘tenure’ in all existing contracts:
  - New legal provision will automatically transform contracts with definite duration (defined as those expiring upon age limit or retirement) into indefinite-duration contracts for which standard layoff procedures apply.
- Freezing ‘maturity’ coefficients:
  - The freeze will help to limit wage growth given the economic conditions, until unemployment falls below 10 percent.
- Eliminating unilateral recourse to arbitration:
  - Changes will allow requests for arbitration only if both parties consent, while clarifying that arbitrators may only rule on the basic wage after considering economic and financial circumstances.

### 2. Adjustment of wage floors
- Background:
  - Collective bargaining in Greece occurs at multiple levels (national sectoral/occupational and firm level), with the minimum wage agreed by the national general collective agreement constituting a binding floor for all other agreements.
  - Greece’s entry-level minimum wage is higher than in Portugal (by 50 percent), Spain (by 17 percent), and 5–7 times higher than in Romania and Bulgaria. It also varies with marital status and seniority.
- Agreed measures:
  - Legislate a realignment of the minimum wage level by 22 percent at all levels.
  - Freeze the minimum wage until the end of the program period.
  - Implement a further 10 percent decline for youth (under the age of 25).
  - Prepare a plan to overhaul the minimum wage framework to allow it to fulfill its basic function of ensuring a uniform safety net.

*Source: Box 3. International Experience with Internal Devaluation (concluded); Box 4. The 2012–14 Fiscal Baseline; Box 5. Labor Market Reform*

### 3. Reduction of non-wage labor costs. Greece’s labor tax wedge is higher than in peers (total social

### 3. Reduction of non-wage labor costs. Greece’s labor tax wedge is higher than in peers (total social

### Labor tax wedge and policy action
- Total social contributions stand at 44 percent of wages, compared to the EU average of 30–35 percent.
- High labor tax wedge is described as discouraging employment in the formal economy and restricting resources available to firms for investment.
- Authorities agreed to enact legislation to reduce social security contribution rates for employers by 5 percentage points.
- Measures to ensure the reduction is budget neutral include:
  - closing small earmarked funds engaged in non-priority social expenditures,
  - adjusting pensions,
  - broadening the base.

### Selected economic indicators and outlook
- Manufacturing PMI is at historic lows; new orders and export expectations have recently weakened.
- The outlook for employment continues to be negative; business employment outlook and export volume expectations in manufacturing show weakness.
- Economic sentiment remains poor across Industry, Consumer, and Composite indices.
- Forward-looking indicators suggest that export growth is likely to lose momentum.
- Real GDP growth: "GDP growth has turned out lower than envisaged in the SBA, and the recession has deepened further."

### Inflation and wage/price rigidities
- Headline inflation and inflation at constant taxes (HICP) are tracked across Dec-09 to Dec-11.
- Inflation was pushed higher due to indirect tax increases, but has now fallen below Euro area levels, though still at or above levels in other Euro area periphery countries.
- Wage rigidities: downward nominal wage rigidity and real wage indexation are highlighted; average duration of price and wage spells (months) shows prices and wages remain high in European comparison.

### Competitiveness and labor costs
- Productivity has turned positive, mainly due to accelerated employment adjustment.
- Headline inflation remains elevated, mainly due to indirect tax rate increases.
- The CPI-based REER remains elevated, but ULC (Nominal Unit Labor Cost) have started to decline.
- Wages and salaries per employee have continued to fall; labor productivity is shown relative to the Euro area.
- Greece: World Export Market Share (percent) improved, reflecting non-euro area exports.

### Balance of payments developments
- Recent capital inflows have been driven by government loans and banks' foreign asset sales.
- Official creditors continue to provide the bulk of support.
- Higher oil prices have worsened the oil balance; the overall current account is gradually improving.
- The non-oil trade balance is improving, increasingly driven by export growth rather than import compression.
- Tourism receipts have been strong in 2011; net ship balance and tourism receipts are tracked.

### Financial and banking indicators
- Stock market remains depressed despite some early-2012 gains; declines driven by bank equities.
- Bank spreads remain high on concerns about banks' exposure to the sovereign.
- Sovereign 2-year and 10-year note spreads surged to new highs in early 2012; CDS spreads have surged to new record highs.
- Credit (year-on-year percent change) shows contraction across corporate, housing, and consumer sectors.
- Private sector deposits continue to contract.
- Eurosystem Borrowing and Emergency Liquidity Assistance increased steeply (ELA and ECB).
- Regulatory capital to risk-weighted assets: capital ratios remained stable in 2011 Q2.
- Nonperforming loans to total gross loans increased sharply.
- Return on equity (after taxes) profitability was hit by GGB haircuts and higher provisioning needs.

### Money, banking, and liquidity
- Credit across main sectors contracted (corporate, housing, consumer).
- Deposits contracted year-on-year; liquidity support increased.
- Nonperforming loans rose; profitability fell due to sovereign losses and provisioning.

### Fiscal performance and targets
- Table 1. Greece: Quantitative Performance Criteria (Billions of Euro, unless otherwise indicated) includes:
  - Floor on the modified general government primary cash balance: entries shown include -4.3, -4.9, -5.1, -4.9, -5.0, -5.3, -5.1, -4.8.
  - Ceiling on State Budget primary spending: entries shown include 30, 28.4, 34.7, 33.5, 44.5, 42.0, 60.8, 59.1.
  - Ceiling on the overall stock of central government debt: entries shown include 394, 365, 394, 377, 394, 371, 394, 371.
  - Ceiling on the new guarantees granted by the central government: entries shown include 1.0, 0.3, 1.0, 0.3, 1.0, 0.6, 1.0, 0.6.
  - Ceiling on the accumulation of new external payments arrears on external debt contracted or guaranteed by general government: entries shown include 0.0, 0.005, 0.0, 0.001, 0.0, 0.0, 0.0, 0.0.
  - Floor on privatization receipts (cumulative): entries shown include 0.39, 0.39, 1.70, 0.39, 1.70, 1.6.
  - Indicative target — Ceiling on the accumulation of new domestic arrears by the general government: entries shown include 0.0, 4.0, 0.0, 3.9, 0.0, 3.8, 0.0, 3.0.
- Notes: 1/ Cumulatively from January 1, 2011 (unless otherwise indicated). 2/ Applies on a continuous basis from program approval (May 9, 2010). 3/ Cumulatively from January 1, 2011. 4/ Calculated on a cumulative basis from January 1, 2010 and applied on a continuous basis from program approval (May 9, 2010).

### Structural indicators and reforms
- Job entry-exit costs were lowered by reducing severance notification periods and payments.
- Two important new laws liberalized professional services and road freight.
- Regulatory barriers to entrepreneurship have been eased (OECD-based indices for 2008 and estimated 2011 for Greece).

### Macro projections and comparisons
- Revised macro projections (year-on-year percent change) show:
  - Real GDP growth: recession deeper than expected; labor market reforms projected to have a positive impact on medium-term employment.
  - Real private consumption: falling incomes and employment drag consumption.
  - Unemployment Rate: projected to rise (chart tracks to 2016).
  - External Current Account: projected to be wider due to a higher 2011 base and terms-of-trade effects.
  - Nominal GDP: contraction (deeper contraction of nominal GDP) as lower wages and the deep recession lead to moderate deflation.
  - GDP deflator: moderate deflation expected.
- International comparison (difference to pre-recession period in percentage points) highlights:
  - Greece’s recession is expected to be protracted, with post-recovery growth rates of GDP and domestic demand remaining below pre-crisis year levels for a long time.
  - Fiscal adjustment is projected to be more ambitious, reflecting initial imbalances and reduced interest payments following the PSI.
  - Disinflation will be delayed, partly due to the pass-through of indirect tax rate hikes.
  - Labor market adjustment was delayed but strong; unemployment likely to remain high.
  - External adjustment is progressing more gradually than in the Baltic countries.

### Labor market developments
- Employment adjustment has occurred largely in the private sector (e.g., construction, electricity, and manufacturing).
- Wages have adjusted slowly and by less than employment, with the largest declines in hotels/food and electricity.
- Public and private sector employment and wages are tracked (indices, 2000Q1=100), showing private sector employment declines and sectoral shifts.

### Barriers to investment and exports
- Greece’s investment rate has been relatively low (investment, average 2005-2010, percent of GDP).
- Greece has been relatively less open to trade (exports, average 2005-2010, percent of GDP).
- Administrative and time-consuming procedures hinder exports: documents to export (number), time to export (days), and cost to export (US$ per container) exceed OECD averages.
- Procedures to start a business, cost to start a business (% inc/capita), procedures for construction permits, procedures to get electricity, procedures to register property, and enforcing contracts (months) show higher barriers relative to OECD averages.

### Structural benchmarks under the SBA (selected)
- Table 2. Greece: Structural Benchmarks Under the SBA, 2010–11 (1 of 2) includes:
  - Appoint staff team and leader in GAO responsible for general government in-year cash reporting — Completed as prior action for program approval.
  - Reduce public wage bill by cutting bonuses/allowances and pension bonuses (except minimum pensions) — Completed as prior action for program approval.

*Source: IMF staff report content provided in the chapter "3. Reduction of non-wage labor costs. Greece’s labor tax wedge is higher than in peers (total social" from the supplied PDF excerpt.*

### 3.  Increase standard VAT rate from 21 to 23 percent and reduced rate from 10 to 11 percent and excise tax rates on alco

### _cr1257 - 3.  Increase standard VAT rate from 21 to 23 percent and reduced rate from 10 to 11 percent and excise tax rates on alco

### Fiscal measure: VAT and excises
- Increase standard VAT rate from 21 to 23 percent and reduced rate from 10 to 11 percent and excise tax rates on alcohol, tobacco, and fuel with a yield of at least €1.25 billion in the remainder of 2010.
- Improves fiscal sustainability.
- Completed as prior action for program approval.

### Major fiscal and structural policy actions (selected)
- Reorganize sub-central government to reduce number of local administrations and elected/appointed officials (Kalikrates).
  - Improves fiscal sustainability.
  - Completed as end-Jun. 2010 structural benchmark.
- Amend Law 2362/1995 to require: (i) MoF to present a 3-year fiscal and budget strategy; (ii) top-down budgeting with expenditure ceilings for the State budget and multi-year expenditure estimates by line ministry; (iii) standard contingency margins; (iv) require a supplementary budget for any overspending above the contingency; and (v) introduce commitment controls. Amended law immediately effective, including in context of 2011 budget.
  - Improves credibility of the budget and fiscal consolidation program.
  - Completed as end-Jun. 2010 structural benchmark.
- Adopt a comprehensive pension reform that reduces the projected increase in public spending on pensions over the period 2010-60 to 2½ percent of GDP.
  - Improves fiscal sustainability.
  - Legislation passed as end-Sept.2010 structural benchmark.
- National Actuarial Authority to produce a report to assess whether parameters of the new pension system significantly strengthen long-term actuarial balance.
  - Improves long-term fiscal sustainability and increases labor force participation.
  - End-Jun. 2010 structural benchmark rescheduled and completed at end-Dec. 2010 for main social security funds and at end-Mar. 2011 for remaining supplementary funds.
- Publish 2009 audited financial statements of the ten largest loss-making public enterprises on the MoF's website.
  - Increases fiscal transparency.
  - Completed with delay as end-Sept. 2010 structural benchmark.
- Publish detailed MoF report (with single payment authority) on structure and levels of compensation and the volume and dynamics of employment in general government.
  - Improves transparency of public sector employment.
  - Partially completed (with delay) as end-Dec. 2010 structural benchmark.
- Adopt new Regulation of Statistical Obligations for agencies participating in the Greek Statistical System.
  - Improve fiscal reporting.
  - Partially completed (with delay) as end-Dec. 2010 structural benchmark.
- Publish the medium-term budget strategy paper, laying out time-bound plans to address: (i) restructuring plans for large and/or loss making state enterprises; (ii) closure of unnecessary public entities; (iii) tax reform; (iv) reforms to public administration; (v) the public wage bill; and (vi) military spending.
  - Supports fiscal consolidation.
  - Completed as end-Apr. 2011 structural benchmark.
- Parliament to approve the medium-term budget strategy (MTFS).
  - To reduce the overall deficit to below 3 percent of GDP by 2014.
  - Completed as prior action for the 4th review.
- Government to complete key actions from MTFS reform bills, including:
  - (i) introduce pension adjustment bill stipulating freezes through 2015, introducing individual social security numbers, caps, means testing, and rationalizing benefits of pension funds;
  - (ii) introduce single public pay scale bill, temporarily freeze automatic progression, and halve productivity allowance; and
  - (iii) close 40 small public entities, merge 25 more small entities, and close an additional 10 large entities under line ministries and in the social security sector.
  - To reduce the overall deficit to below 3 percent of GDP by 2014.
  - The Aug.15 structural benchmark (including the reform of the personnel system, rescheduled end-Jun. 2011 benchmark) was delayed and completed as prior action for the 5th review.
- Government to enact spending reductions (including pensions and earmarked spending and advanced removal of the heating fuel subsidy); revenue measures (including reducing PIT thresholds and reductions).
  - To help reach the 2012 fiscal target.
  - Completed as prior action for the 5th review.

### Fiscal control, tax administration, and transparency measures
- Establish a commitment register in all line ministries and public law entities. Begin publishing monthly data on general government in-year fiscal developments (including arrears).
  - Reduces budget overruns.
  - Partially completed (with delay) as end-Sept. 2010 structural benchmark.
- Put in place an effective project management arrangement (including tight MOF oversight and five specialist taskforces) to implement the anti-evasion plan to restore tax discipline through: strengthened collection enforcement and recovery of tax arrears—coordinated with the social security funds—of the largest debtors; a reorganized large taxpayer unit focused on compliance of the largest revenue contributors; a strong audit program to defeat pervasive evasion by high-wealth individuals and high income self-employed, including prosecution of the worst offenders; and a strengthened filing and payment control program.
  - Achieves revenue targets and enhances fiscal sustainability.
  - Completed as end-Sept. 2010 structural benchmark.
- Table legislation to: (i) streamline administrative tax dispute and judicial appeal processes; (ii) remove impediments to core tax administration functions (e.g. centralized filing enforcement and debt collection, indirect audit methods, and tax returns processing); and (iii) introduce a more flexible human resource management system (including acceleration of procedures for dismissals and prosecution of breach of duty).
  - Removes legal and administrative impediments to tax collection.
  - End-Feb. 2011 structural benchmark delayed and completed as prior action for the 3rd review.
- Appointment of financial accounting officers in all line ministries and major general government entities (responsible to ensure sound financial controls).
  - Improves control and transparency of budget expenditures.
  - End-Mar. 2011 structural benchmark met with a delay.
- Government to legislate key fiscal-structural reforms in an MTFS Implementation Bill.
  - To improve efficiency of public spending, reduce waste, broaden the tax base and reduce tax evasion.
  - Completed as prior action for the 4th review.
- Articulate a strategic plan of medium-term revenue administration reforms to fight tax evasion.
  - Improves revenue administration.
  - End-Jun. 2011 structural benchmark was delayed.
- Publish 3 consecutive months of consistent arrears and consolidated general government fiscal reports.
  - Improves fiscal transparency.
  - End-Jun. 2011 structural benchmark was delayed.
- Government to achieve quantitative targets set under its anti-tax evasion plan.
  - Combats tax evasion and improves collection.
  - End-Dec. 2011 structural benchmark was delayed and converted into prior action for the new EFF program.

### Financial sector measures
- Establish the independent Financial Stability Fund (FSF) to preserve the financial sector's soundness.
  - Enhances financial stability.
  - Completed as end-Jun. 2010 structural benchmark.
- Enactment of €25 billion bond guarantee tranche.
  - Supports bank liquidity.
  - Completed as prior action for the first review.
- Pass legislation to separate core consignment activity from commercial activities of the HCLF.
  - Fosters banking sector stability.
  - End-Mar. 2011 structural benchmark met with a delay.
- Government to put forward for legislative adoption a new tranche of government guarantees for uncovered bank bonds.
  - Assures sufficient banking system liquidity.
  - Completed as end-Mar. 2011 structural benchmark.
- Commercial banks to submit medium-term funding plans to the ECB and the Bank of Greece.
  - Reduces banks' reliance on exceptional support.
  - Completed as end-May 2011 structural benchmark.
- Parliament to pass legislation revising FSF operating framework and bank resolution framework (deposit guarantee scheme and early intervention and bank liquidation frameworks).
  - Strengthens resolution framework.
  - Met (with delay) as Sept. 15 2011 structural benchmark.
- Bank of Greece and FSF to complete memorandum of understanding to strengthen cooperation (sharing supervisory information).
  - Strengthens institutions for public support for banking system.
  - Completed as prior action for the 5th review.
- Government to enact legislation addressing governance arrangements for financial oversight agencies, including (i) organizational arrangements for the Bank of Greece; (ii) corporate governance arrangements for the HFSF; and (iii) governance arrangements for the HDIGF.
  - Strengthens governance for financial oversight agencies.
  - End-Dec. 2011 structural benchmark was delayed and converted into prior action for the new EFF program.

### Privatization targets and implementation
- Prepare a privatization plan for divestment of state assets and enterprises with aim to raise at least €1 billion a year during the period 2011-2013.
  - Reduces state intervention; improves market efficiency; cuts fiscal contingencies.
  - Completed as end-Dec. 2010 structural benchmark.
- Parliament to approve privatization and real estate development strategy through 2015.
  - To transfer public assets to more productive uses and to use proceeds to reduce Greece's debt.
  - End-Jul. 2011 structural benchmark was delayed and completed as prior action for the 4th review.
- Government to legislatively establish a Privatization Agency.
  - To facilitate privatization.
  - Completed as prior action for the 4th review.
- Government to (i) shift a second group of assets into the privatization fund covering transactions to be completed through end-2012; and (ii) appoint legal, technical, and financial advisors for 14 projects to be completed by end-2012.
  - To allow asset sales according to revised privatization schedule.
  - Completed as prior action for the 5th review.

### Labor market, competition, and structural reform measures
- Table legislation to reform collective bargaining: eliminate automatic extension of sectoral agreements to those not represented and guarantee firm-level agreements take precedence without undue restrictions.
  - Increases labor market flexibility.
  - Completed as structural benchmark for end-Dec. 2010.
- Pass framework law removing restrictions to competition in regulated professions (as defined in the EU Services Directive), addressing closed professions (lawyers, notaries, engineers, architects, and auditors).
  - Liberalizes services sector to strengthen competition and improve efficiency.
  - Completed as prior action for the third review.
- Enact legislation to (i) allow worker representatives to negotiate both special and regular firm-level agreements; (ii) suspend the "favorability clause" in wage negotiations until at least 2015; and (iii) suspend until at least end-2014 the possibility to extend sectoral agreements to parties not represented in negotiations.
  - To increase wage flexibility and employment.
  - Completed as prior action for the 5th review.

### Selected economic indicators (excerpted from Table 3 and related tables)
- Real GDP row (2007–2012 sequence as presented): Real GDP3.0-0.1-3.3-3.5-6.0-6.9-4.8
- Output gap (percent of pot. output): 8.78.35.02.9-2.7-2.4-6.7
- Unemployment rate (percent) 1/: 8.37.79.412.517.017.019.1
- Consumer prices (HICP), period average: 2.94.11.24.73.13.1-0.5
- Current account: -14.6-14.9-11.1-10.1-8.4-9.8-7.5
- Total revenues (percent of GDP): 40.740.537.939.540.541.042.2
- Total expenditures (percent of GDP): 47.550.553.650.149.550.349.5
- Overall balance (percent of GDP): -6.8-10.0-15.7-10.6-9.0-9.3-7.3
- Primary balance (percent of GDP): -2.0-4.9-10.4-5.0-2.3-2.4-1.0
- Gross debt (percent of GDP): 107113129145162165163
- Nominal GDP (billions of euros) (Memorandum item): 223233232227222215204
- Privatization aim: raise at least €1 billion a year during the period 2011-2013.
- Financial support measures enacted: €25 billion bond guarantee tranche.

*Source: IMF staff.*

### 1. Direct taxes

### 1. Direct taxes

### Income taxes
- 4.3 9.0 16.0 22.9 21.5 22.0 22.9 23.4

### PIT
- 2.0 5.4 10.4 14.7 14.2 14.9 16.1 16.4

### CIT
- 1.6 3.8 7.5 10.9 10.1 10.5 11.1 11.4

### Other (Direct taxes)
- 0.0 0.9 1.6 2.3 2.5 2.8 3.3 3.4

### Other (line)
- 0.3 0.7 1.2 1.5 1.5 1.6 1.6 1.6

### Property taxes
- 1.0 1.1 1.6 2.8 2.5 2.8 2.8 2.9

### Tax arrears collection (Direct)
- 0.7 1.4 1.8 2.2 2.2 1.6 1.7 1.7

### Other direct taxes
- 0.6 1.1 2.2 3.2 2.7 2.7 2.3 2.4

### 2. Indirect taxes

### Aggregate indirect taxes
- 6.8 13.0 19.7 26.9 26.8 27.3 28.0 28.4

### Transaction taxes
- 4.2 8.2 12.5 16.5 16.2 16.6 17.0 17.3

### VAT
- 4.0 7.8 11.9 15.7 15.4 15.7 16.1 16.4

### Other (Indirect - transaction)
- 0.2 0.4 0.6 0.9 0.8 0.9 0.9 0.9

### Consumption taxes
- 2.4 4.4 6.6 9.6 9.9 10.0 10.2 10.3

### Tax arrears collections (Indirect)
- 0.1 0.2 0.3 0.4 0.4 0.4 0.4 0.4

### Other indirect taxes
- 0.1 0.2 0.3 0.3 0.3 0.3 0.3 0.4

### 3. Transfers EU
- 0.0 0.1 0.1 0.2 0.2 0.2 0.2 0.0

*Source: _cr1257 - 1. Direct taxes*

### 4. Nontax revenue

### 4. Nontax revenue

### Nontax revenue components and related items (selected series)
- Nontax revenue series: 0.6 1.2 1.8 2.2 2.2 2.4 2.6 2.7
- B. One-off revenue: 0.3 0.6 1.4 2.1 2.2 2.4 1.9 2.0
- C. Revenue from concession and rights: 0.0 0.0 0.3 0.3 0.1 0.0 0.0 0.0
- D. Tax Refunds: 0.5 1.5 2.8 3.9 4.0 4.0 4.0 4.4
- Investment budget: 0.3 1.8 3.0 4.7 5.3 4.9 2.4 4.1
  - A. EU flows: 0.3 1.7 2.9 4.6 5.0 4.7 2.2 3.9
  - B. Own revenues: 0.0 0.1 0.2 0.2 0.3 0.2 0.2 0.2

### Expenditure and spending composition (percent of GDP series)
- Expenditure (total): 20.1 37.0 52.5 67.4 68.0 67.0 66.4 68.8
- Ordinary spending: 19.0 33.0 46.4 59.0 59.2 58.4 57.9 60.7
- Ordinary primary spending: 12.6 24.9 36.7 47.7 48.0 46.4 45.6 47.5
  - A. Remuneration and pensions: 4.9 10.2 15.4 20.5 19.9 19.9 20.0 20.8
  - B. Insurance and Healthcare: 4.8 9.1 12.6 15.6 16.3 14.6 14.0 14.6
  - C. Operating and other expenditure: 1.7 3.4 5.0 6.6 6.5 6.5 6.2 6.4
  - D. Earmarked revenue: 1.0 2.1 3.0 4.0 4.0 4.2 4.3 4.4
  - E. Reserve: 0.1 0.2 0.7 1.0 1.3 1.2 1.2 1.2
- Interest: 6.4 8.0 9.7 11.3 11.3 12.0 12.3 13.1
- Transfers to hospitals for the settlement of past debt: 0.0 0.0 0.2 0.4 0.4 0.4 0.4 0.0
- Investment (percent of GDP): 1.1 3.8 5.5 7.3 7.3 7.3 7.3 7.3
- Spending on military procurement: 0.1 0.2 0.5 0.7 1.1 1.0 0.8 0.8

### Fiscal balances (percent of GDP)
- Balance: -8.3 -12.8 -12.9 -12.1 -13.8 -12.0 -12.4 -12.6
- Primary balance: -1.8 -4.8 -3.2 -0.7 -2.6 0.0 -0.1 0.6
- II. Balance local governments: 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1
- III. Balance social security funds: -0.5 -1.0 -1.6 -2.1 -1.8 -2.4 -2.8 -2.9
- IV. Balance of extra-budgetary funds (ETERPS): 0.2 0.3 0.5 0.6 0.3 0.1 0.1 0.1
- V. Called guarantees from non-general govt entities: 0.0 -0.1 -0.1 -0.1 -0.3 -0.2 -0.1 -0.1
- VI. Change in arrears of line ministries: 0.0 0.0 -0.2 -0.3 -0.1 0.0 0.0 0.0
- VII. Change in arrears of hospitals: 0.0 0.0 -0.2 -0.4 0.0 0.0 0.0 0.0
- VII. Change in other arrears: 0.0 0.0 -1.0 -3.3 -2.9 0.0 0.0 0.0
- VIII. Balance of reclassified public enterprises: -0.1 -0.3 -0.4 -0.5 -0.4 -0.3 -0.3 -0.3
- IX. Unidentified measures: 7.8 11.7 11.4 11.9
- X. Modified general government cash balance: -8.8 -13.9 -15.8 -18.2 -11.3 -3.0 -4.0 -3.7
- Modified general government primary cash balance: -2.3 -5.8 -6.1 -6.8 0.0 9.0 8.3 9.4
- Primary spending: 13.7 29.0 44.2 60.2 52.4 43.6 42.8 43.9

### Memorandum items (percent of GDP)
- Floor on the modified general government primary cash balance: -2.5 -6.0 -6.3 -7.0 -0.2 8.8 8.1 ...
- Ceiling on primary spending: 13.9 29.2 44.4 60.4 52.6 43.8 43.0 ...

Sources: Ministry of Finance; and IMF staff projections.

---

### Status of fiscal-structural reforms (selected actions, 2010–11)
- Pensions
  - Comprehensive reform of main pensions adopted Jul-10
  - Latest studies (October 2011): new law lowered projected increase in pension spending over 2010-2060 to less than 1 percent of GDP (from 12.5 percent of GDP). Supplementary and welfare funds still need reform.
- Health
  - Pension law includes institutional reforms in the health sector Jul-10
    - Financial and accounting independence of health funds (by December 2010); central health agency; integration of social security funds with the NHS (December 2012).
  - Arrears and unpaid bills in health sector settled Jun-10
    - About €5.3 billion arrears and unpaid bills for 2005-09 were identified to be settled using bonds. Arrears have been cleared.
  - Prices of pharmaceuticals reduced by 20 percent Jun-10
    - Across the board cuts implemented (average cut 20 percent); drugs priced using international benchmarks and updated quarterly.
  - Actions to improve budgeting and reduce pharmaceutical costs introduced Feb-11
    - 2011 budget included consolidated budget for social security funds; e-prescription gradually introduced; extended negative list of non reimbursable medicine; co-payment for outpatient services increased to €5 (from €3).
  - Law to implement reforms of health services and organization adopted Feb-11
    - Reduces profit margins, partially liberalizes pharmacist profession, starts unifying primary healthcare services, reforms supply and procurement.
  - Single health fund (EOPYY) created Sep-11
    - EOPYY includes health functions of five main social security funds; uniform health contributions adopted.
- Local Governments
  - Law reforming local governments adopted May-10
    - Reduces number of municipalities (from 1034 to 325), regions (from 13 to 7), local legal entities (from 6,000 to 1,500); merges completed in March 2011.
- State Owned Enterprises
  - Quarterly financial statements published Oct-10
    - Statements published for 46 public enterprises; consolidated summary results and payroll data; coverage expanded.
  - Railway sector reform legislation and business plans Nov-10; wages reduced Jan-11; Athens urban transport reform Mar-11.
- Public Financial Management
  - New Fiscal Responsibility and Management Act (FRMA) approved Aug-10
    - First MTFS for 2012-15 approved Jul-2011; budgets prepared per Act; separate State, Social, LG budgets.
  - General government monthly fiscal data published Sep-10; commitment registers established Dec-10; MTFS 2011-2015 approved Jun-11.
- Revenue Administration
  - Anti-evasion plan designed Dec-10; legislation to remove impediments to effective tax collection adopted Mar-11; new 3-year antievasion plan presented Apr-11; strategic plan Jul-11; reorganization started Oct-11.

Source: IMF Staff

---

### Macro-structural reforms (selected measures and outcomes)
- Labor market and sectoral deregulation
  - Lowering entry-exit costs Jul-10 completed
    - Facilitated firing, eased overtime premia, equalized hourly remuneration for permanent and part-time; 2011 changes doubled conversions to part-time/intermittent relative to 2010.
  - Facilitating firm-level collective bargaining, mediation, arbitration Dec-10 completed
    - 12 SFLCAs (3,500 employees) approved by end-Oct. 2011, reducing wages by avg 10 percent.
  - Allowing flexible labor contracts Jul-11 completed
  - Strengthening the labor inspectorate Jul-11 in progress
    - Total inspections in 2011 up by 2% relative to 2010 and by 15% relative to 2009. Pilot labor card not yet introduced.
  - Facilitating firm-level collective bargaining Oct-11 completed
    - By mid-Feb, 81 firm level agreements (28,000 employees) concluded, cutting wages by avg 15 percent.
- Business environment reforms
  - Liberalization of cruise ships Aug-10 completed; Liberalization of road freight transportation Sep-10 completed.
  - Liberalization of regulated professions Feb-11 in progress.
  - One-stop-shops for business start-ups Jun-10 completed
    - Reduced steps from 11 to 1, days from 38 to 1, cost by >50 percent; GEMI registrations: 6,752 start-ups; total companies registered 25,171 as of end-Jan. 2012.
  - Fast-track procedure for large investment projects Nov-10 completed
    - Nine projects approved; none completed licensing procedures.
  - Strengthening Competition Authority Apr-11 in progress; Simplification of business and environmental licensing Jun-11 and Sep-11 in progress.

Source: IMF staff.

---

### Medium-Term Macroeconomic Framework, 2010–20 (selected projections)
- Real GDP: -3.5 -6.9 -4.8 0.0 2.5 3.1 3.0 2.2 (2010–2020 series)
- Output gap (percent of potential output): 2.9 -2.4 -6.7 -6.7 -4.7 -2.6 -0.9 0.0
- Total domestic demand: -6.0 -8.9 -6.7 -1.4 1.3 1.9 1.9 1.3
- Unemployment rate (percent, LFS): 12.5 17.3 19.4 19.4 18.2 16.8 15.6 11.7
- Consumer prices (HICP), end of period: 5.1 2.2 0.8 0.0 0.6 1.1 1.2 1.9
- Current account (percent of GDP): -10.1 -9.8 -7.5 -6.7 -5.4 -3.3 -2.4 1.2
- Exports of goods and services (percent of GDP): 20.0 22.7 24.8 25.9 26.8 27.7 28.6 31.8
- Gross external debt: 179 192 193 200 200 193 184 141
- Public finances (general government, percent of GDP)
  - Total revenues: 39.5 41.0 42.2 42.2 42.1 40.1 40.1 40.1
  - Total expenditures: 50.1 50.3 49.5 46.8 44.2 41.7 42.0 41.3
  - Primary expenditures: 44.6 43.4 43.2 40.4 37.6 35.6 35.6 35.8
  - Overall balance: -10.6 -9.3 -7.3 -4.6 -2.1 -1.6 -1.9 -1.2
  - Primary balance: -5.0 -2.4 -1.0 1.8 4.5 4.5 4.5 4.3
- Privatization receipts (percent of GDP): 0.00 0.5 1.6 2.1 2.1 2.6 2.6 2.1
- Gross debt (percent of GDP): 145 165 163 167 161 153 145 117

Sources: National Statistical Service; Ministry of Economy and Finance; Bank of Greece; and IMF staff projections.

---

### Balance of payments summary (selected items, percent of GDP)
- Current account balance (prel./projections): -23.0 -21.1 -15.2 -13.6 -11.3 -7.2 -5.4 (2010–2016)
- Goods and services balance (percent of GDP): -15.0 -12.6 -8.6 -6.1 -3.6 -0.8 1.9
- Goods balance: -28.3 -27.2 -24.5 -23.1 -21.9 -21.0 -20.4
  - Exports (billions of euro series shown elsewhere): 17.1 20.2 21.4 22.3 23.6 25.3 27.1
  - Imports: 45.4 47.5 46.0 45.4 45.5 46.3 47.6
- Services balance: 13.2 14.6 15.9 17.0 18.3 20.2 22.3
- Income balance: -8.1 -9.1 -7.3 -8.1 -8.2 -6.9 -7.8
- Capital and financial account balance: -8.1 -21.0 -104.0 -10.2 -10.2 -8.3 0.6
- Program financing (percent of GDP): 31.5 41.5 119.2 23.8 21.5 6.6 1.6
- Current account balance (percent of GDP, alternative series): -10.1 -9.8 -7.5 -6.7 -5.4 -3.3 -2.4

Sources: Bank of Greece; and IMF staff estimates.

---

### General Government Operations, 2009–16 (selected levels and ratios)
- Revenue (billion of Euro): 88.1 89.8 87.9 88.3 86.0 85.7 87.5 86.6 90.2
  - Taxes on production and imports: 26.2 27.3 27.7 27.7 25.5 25.5 25.9 26.6 27.7
  - Taxes on income and property: 19.1 17.5 16.4 17.8 19.3 18.8 19.3 20.2 21.1
  - Social contributions: 29.5 29.8 29.0 26.7 25.5 25.5 26.4 27.0 28.1
  - Other: 10.1 10.5 10.8 10.0 9.9 10.0 10.1 9.8 10.2
  - Capital: 3.2 4.6 4.1 6.6 5.7 5.9 5.7 3.0 3.1
- Primary expenditure (billion of Euro): 112.7 101.0 92.8 93.4 88.0 89.8 89.8 88.3 92.0
  - Wages: 31.0 27.5 24.7 25.8 24.1 23.1 23.0 22.9 23.9
  - Social benefits: 49.0 47.2 44.5 46.5 43.0 44.1 44.2 44.1 46.0
  - Goods and services: 17.1 14.0 11.7 11.7 11.2 11.4 11.4 11.0 11.5
  - Capital: 12.1 8.8 8.3 6.7 7.4 7.4 7.6 7.6 7.9
- Primary balance (billion of Euro): -24.7 -11.3 -4.9 -5.1 -2.0 3.7 9.4 9.7 10.1
- Interest payments (billion of Euro): 11.9 13.2 14.7 14.9 12.8 13.0 13.8 13.3 14.4
- Overall balance (billion of Euro): -36.6 -24.5 -19.6 -20.0 -14.8 -9.4 -4.4 -3.6 -4.3
- Gross debt (Maastricht, percent of GDP): 299.0 329.0 351.0 355.8 332.4 339.4 334.1 331.1 327.3
- Revenue (percent of GDP): 38.0 39.5 40.5 41.0 42.2 42.2 42.1 40.1 40.1
- Primary expenditure (percent of GDP): 48.7 44.4 42.7 43.4 43.2 44.3 43.2 40.8 40.8
- Overall balance (percent of GDP): -15.8 -10.8 -9.0 -9.3 -7.3 -4.6 -2.1 -1.6 -1.9
- Gross debt (Maastricht, percent of GDP): 129.1 144.7 161.8 165.3 163.2 167.3 160.7 153.1 145.3
- Nominal GDP (in euro billions): 231.6 227.3 217.0 215.3 203.7 202.9 207.9 216.3 225.2

Sources: Ministry of Finance; and IMF staff projections.

---

### Authorities' measures to meet the 2012 target (impact in percent of GDP)
- Total net impact: 1.5
- I. Pharmaceutical and health spending: 0.5
  - Reduction in medicine prices (generics and off-patent: 15 percent; branded: 5 percent): 0.1
  - Price rebate: 0.1
  - Additional rebate: 0.1
- II. Wages: 0.1
  - Special wage regimes (average reduction: 12 percent): 0.1
  - Others (1:10 rule in SOEs, reductions for local governments): 0.0
- III. Pensions: 0.2
  - Supplementary pensions (for pensions above €200, reduction: 10-20 percent): 0.1
  - Main pensions (for pensions above €1,300 per month, depending on the fund, reduction of 12-20 percent for the part exceeding €1,300): 0.1
- IV. Defense spending: 0.2
  - Operational expenses: 0.0
  - Procurement: 0.1
- V. Operational and other spending (e.g. subsidies to remote areas, targeting of family allowances, elections, others transfers): 0.2
  - Central government: 0.1
  - Other transfers and subsidies: 0.1
- VI. Domestic investment budget (including incentives): 0.2

Memo items (marginal change):
- Reduction in the PIT threshold and exemptions/discounts: 2.2
- Reductions in general government wages: 0.4
- Reduction in supplementary and main pensions: 0.3

Source: Ministry of Finance and IMF staff estimates.

*Source: _cr1257 - 4. Nontax revenue (IMF staff and Ministry of Finance data as presented in the provided content).*

### 1. Assessment

### 1. Assessment

### Tax administration: services and support to voluntary taxpayer compliance
- About 30 percent of VAT returns are not filed or filed late.
- Payment of taxes at tax offices.
- Potentially large tax evasion: about 75 percent of self employed professionals declaring taxable income below minimum exemption threshold.
- Central Taxpayer Service Directorate to be established as part of medium term strategic plan (Late 2012).
- Further streamlining of filing and payment systems (During 2012).

### Controls: monitoring, audit selection, and audit execution
- Filing and payment enforcement
  - Weak and decentralized filing and payment enforcement system, with not automated procedures.
  - Data gathering ad hoc, with no central control for monitoring and enforcing compliance.
  - Monitor progress towards achieving performance targets (Monthly performance reports, 2012).
- Identification/prioritization of audit cases
  - Limited prioritization and risk-based selection of audit cases.
  - Medium-term strategic plan and annual operational plans to introduce a fully-fledged risk-based compliance framework for large taxpayers and high wealth individuals (HWI) to be developed further (December 2012).
- Audit execution and collection
  - Audit process not centralized.
  - Limited use of indirect methods of assessment.
  - Low collection of assessed taxes.
  - Consolidation of audit activities at GSTC headquarters and large offices, and closures of about 200 local offices (During 2012).
  - Assessment of auditors' qualifications and hiring process of new auditors to be completed (March 2012).
  - Double the auditing capacities of the large taxpayer unit (March 2012).
  - Expand the number of auditors (During 2012).

### Enforcement: dispute resolution and arrears collection
- Administrative and judicial appeals
  - Average time to resolve tax disputes in judicial appeals process is 7 to 12 years and has created a huge backlog of pending cases (about 165,000).
  - Administrative tax dispute process not independent from tax administration.
  - Pre-payment prior to the judicial appeal often waived by courts (no cost to appeal).
  - All dedicated tax chambers to be operative (March 2012).
  - Issue secondary legislation to enable certification of tax arbitrators (March 2012).
  - Backlog of judicial tax cases to receive hearing date (July 2013).
  - Standardize processes to determine the inability to pay taxes (including reporting assets) when accessing judicial appeals (March 2012).
- Collection of assessments under appeal and arrears
  - Poor collection enforcement: collection of fines and penalties around 1 percent, debt collection not centralized.
  - Monitor progress towards achieving performance targets (Monthly performance reports 2012).
  - Central debt directorate to be fully operative, staff to be increased by at least 50 people, and collection activities centralized in a few offices (Early 2012).

### Spending process (Table 14): budgeting, spending controls, reporting, and external auditing

- Budgeting
  - No binding medium-term objectives for fiscal policy.
  - Budget process focused mainly on the year ahead.
  - Budgets prepared mainly in a bottom-up fashion with no hard budget constraints.
  - Fiscal planning largely confined to the state budget with the MOF only responsible for administration and management.
  - Budget preparation processes for other general government entities disjointed.
  - Responsibility for social security fragmented with no effective preparation, management, and monitoring of social security budget.
  - Parliamentary budget oversight weak and no intra-year supplementary budgets required.
  - Next steps:
    - A formal review process to be established for in year revisions of the MTFS (June 2012).
    - A formal calendar for the preparation of the 2012-16 MTFS to be issued (March 2012), and the 2012-16 MTFS to be prepared (mid 2012).
    - Issue regulations to fully implement the Financial Responsibility Management Act (FRMA), including rules for fiscal impact assessment of policy initiatives initiated during the year (October 2012).
    - Adopt legislation and regulations to streamline procedures for submission and adoption of within year supplementary budgets (October 2012).

- Spending Controls
  - Line ministries do not check or control expenditure commitments.
  - No central control on incurred commitments by decentralized agencies.
  - Execution of budget releases focused on verifying payments.
  - Next steps:
    - Coverage of data reporting from the commitment registers to be gradually expanded to cover all line ministries and GG entities as well as ordinary and investment budget (June-December 2012).
    - Accounting officers in line ministries to adopt new structures for directorates of financial services (June 2012).
    - Inter-ministerial committee to be appointed to monitor, control and report on the implementation of the social budget (March 2012).

- Pay invoices and implement accounting and audit controls
  - Cumbersome checking procedures to make payments, with several institutions involved (e.g. financial services of the spending unit, the Fiscal Audit Office (FAO) and the Court of Audit locally stationed).
  - Controls are mainly compliance-oriented.
  - Next steps:
    - Role of Financial Audit Office (FAO) in spending units to be clarified, following the appointment of accounting officers.
    - Procedures for audit clearance and payment orders to be streamlined, including the scaling down of preventive audits (During 2013).

- Reporting
  - Limited real-time monitoring of arrears and other pending bills.
  - Collection of payment information at non-central government level difficult.
  - Next steps:
    - Commitment registers to report reliable data from all GG entities and used to publish arrears data (December 2012).
    - Interministerial committee to be established to monitor, control and report on the implementation of the social budget (March 2012).
    - Work to begin to review the functionalities of the Financial Management Information System (FMIS), to use the new system to control fiscal operations and report fiscal data for the GG on a pilot basis (During 2013).
    - Establish and start a process to clear past arrears subject to validation of arrears, compliance with basic PFM reforms, and no accumulation of additional arrears (During 2012-Early 2013).
    - Detailed monthly fiscal reports for GG, with the composition of revenue and expenditure by sub-sector and major economic categories, to be published (Late 2012).
    - FMIS to be launched to collect detailed data from general government entities (During 2013).

- External Auditing and Parliamentary oversight
  - The Court of Audit does not carry out performance audits on a systematic basis. Audits are mainly ex-ante and focused on the legality of spending.
  - The court does not audit spending from some entities (e.g. public law entities, secret defense and foreign affairs procurement).
  - The mandate of the Public Finance Committee in Congress is limited to review information provided by the ministry of finance and reports submitted by the Court of Audit.
  - Parliament continues to receive periodical reports (During 2012).
  - Re-staff the Parliamentary Budget Office (During 2012).

### Monetary Financial Institutions: uses and sources of funds (Table 15 key figures)
- Aggregate assets (in billions of euro)
  - 2006: 321.03
  - 2007: 391.34
  - 2008: 464.54
  - 2009: 491.95
  - 2010: 5.34? (source table lists "5.347" in context of continuation) — note: table entries continue through 2016 as proj./proj.
- Cash (percent or level as presented)
  - 2006: 2.6
  - 2007: 2.7
  - 2008: 2.7
  - 2009: 2.5
  - 2010: 2.1
  - 2011: 2.4
  - 2012: 2.4
  - 2013: 2.4
  - 2014: 2.5
  - 2015: 2.6
  - 2016: 2.7
- Claims on non-MFIs (in billions of euro)
  - 2006: 227.5
  - 2007: 264.8
  - 2008: 301.1
  - 2009: 309.3
  - 2010: 357.8
  - 2011: 339.2
  - 2012: 287.9
  - 2013: 277.1
  - 2014: 281.4
  - 2015: 294.0
  - 2016: 311.1
- Private sector claims (1/)
  - 2006: 170.7
  - 2007: 202.4
  - 2008: 221.3
  - 2009: 211.7
  - 2010: 256.9
  - 2011: 247.6
  - 2012: 237.8
  - 2013: 232.5
  - 2014: 239.6
  - 2015: 248.0
  - 2016: 258.0
- Eurosystem liquidity support (selected)
  - 2006: 4.9
  - 2007: 8.8
  - 2008: 40.6
  - 2009: 49.7
  - 2010: 7.8
  - 2011: 6.9
  - 2012: 4.4
  - 2013: 1.4
  - 2014: 1.4
  - 2015: 8.9
  - 2016: 5.5
- Memorandum items
  - Domestic private sector deposit growth (percent)
    - 2006: 10.9
    - 2007: 14.3
    - 2008: 13.3
    - 2009: 4.9
    - 2010: -12.4
    - 2011: -16.5
    - 2012: -10.5
    - 2013: -2.7
    - 2014: 4.4
    - 2015: 8.5
    - 2016: 8.8
  - Private sector credit growth (percent)
    - 2006: 21.1
    - 2007: 21.5
    - 2008: 15.9
    - 2009: 4.2
    - 2010: 0.0
    - 2011: -3.2
    - 2012: -4.0
    - 2013: -2.2
    - 2014: 3.1
    - 2015: 3.5
    - 2016: 4.0
  - Eurosystem liquidity support (in percent of total assets)
    - 2006: 1.5
    - 2007: 2.2
    - 2008: 8.7
    - 2009: 10.1
    - 2010: 19.0
    - 2011: 16.1
    - 2012: 10.2
    - 2013: 10.7
    - 2014: 9.9
    - 2015: 8.7
    - 2016: 6.4

  (Notes in table: 1/ As of June 2010, securitised assets are no longer derecognised from the balance sheet of banks that have adopted the International Accounting Standards. The counterpart of these assets is recorded on the liabilities side as deposit liabilities to non-euro area residents. 2/ June 2010 reclassification related to liabilities associated with assets disposed of in a securitisation but still recognised on the statistical balance sheet.)

### International experience with banking crises and recapitalizations (Table 16: selected country cost and recapitalization approaches)
- Finland 1991/92: Total cost to government (gross) 28.6 (in percent of GDP); recapitalization using subordinated debt; preferred shares; crisis start Sep-91; first bank intervention Sep-91; blanket guarantees Feb-93 to Dec-98.
- Jamaica 1996/97: Total cost to government (gross) 13.9 (in percent of GDP); recapitalization using preferred shares; purchase of bad loans; assumption of bank liabilities; ordinary shares; first bank intervention Dec-94; crisis start Dec-96; blanket guarantees Feb-97 to Mar-98.
- Thailand 1997: Total cost to government (gross) 18.8 (in percent of GDP); recapitalization using government bonds; first bank intervention Mar-97; crisis start July 1997; blanket guarantees Aug-97 to Jan-05.
- Indonesia 1997: Total cost to government (gross) 37.3 (in percent of GDP); recapitalization using government bonds; cash; crisis start Nov-97; blanket guarantees Jan-98 to Jul-05.
- Korea 1997: Total cost to government (gross) 19.3 (in percent of GDP); recapitalization using subordinated debt; preferred shares; purchase of bad loans; government bonds; first bank intervention Oct-97; crisis start Aug-97; blanket guarantees Nov-07 to Dec-00.
- Malaysia 1997: Total cost to government (gross) 16.4 (in percent of GDP); recapitalization using preferred shares; credit line; crisis start Jul-97; blanket guarantee Jan-98 to Aug-05.
- Turkey 2000/01: Total cost to government (gross) 24.5 (in percent of GDP); recapitalization using government bonds; government bonds paid for recapitalization; first bank intervention Nov-00; crisis start Nov-00; blanket guarantees Dec-00 to Jul-04.
- Argentina 2001/02: Total cost to government (gross) 29.6 (in percent of GDP); recapitalization using government bonds; government bonds paid for recapitalization; crisis start Dec-01; Dec-01 deposit freeze and bank holiday; first bank intervention Apr-02.
- Uruguay 2002: Total cost to government (gross) 6.2 (in percent of GDP); recapitalization using subordinated debt; cash; crisis start Jan-02; first bank intervention Feb-02; introduction of deposit freeze and bank holiday.
- Iceland 2008: Total cost to government (gross) 55.0 (in percent of GDP); recapitalization using purchase of bad loans; government bonds; targeted deposit guarantees Oct-08.

*Source: IMF staff*

### introduction of asset management

### introduction of asset management

### Bank interventions, guarantees, and asset measures
- Latvia (Mar-09): 5.0 ordinary shares; subordinated term debt.
- Targeted deposit guarantees Oct-08.
- Liability guarantee program Dec-08.
- Bilateral swap facilities with DEN & SWE Dec-08.
- First bank intervention Dec-08.
- Ireland (2010): 25.0 purchase of bad loans; preference shares; ordinary shares; convertible non-voting shares; government bonds; government-guaranteed bonds cashable at ECB.
- Blanket guarantees Oct-08; liability guaranty program Oct-08; bank recapitalization Dec-08.

### Greece: Structural reforms ahead (Table 17) — labor market, product and service markets, business environment and judicial reform
- Further facilitating collective bargaining, adjusting minimum wages, and eliminating unilateral recourse to arbitration.
  - MEFP/MoU deadline: Feb-12.
  - Description: Government legislates (i) modification of after effects of contract expiration (allow only basic wage and maturity, child, education, and dangerous allowances to apply 3 months after collective contract expires); (ii) limit of contract duration to 3 years; (iii) freeze in maturity coefficients; (iv) elimination of tenure in all legacy contracts; (v) elimination of unilateral arbitration, requiring mutual consent for arbitration; reduction in current levels of the minimum wage by 22 percent, freezing them for the duration of the program, and reduction in the minimum wage for youth (under the age of 25) by a further 10 percent.
  - Macroeconomic implications: Improves the efficiency of collective bargaining and reduces wage floors, supporting employment and an improvement in unit labor costs and competitiveness.
- Review of the minimum wage framework.
  - Deadline: Jul-12.
  - Description: Government prepares, together with social partners, a clear timetable for an overhaul of the national general collective agreement to bring it into line with peers and allow it to fulfill its basic function of ensuring a uniform safety net for all employees.
  - Macroeconomic implications: Improves competitiveness, and promotes employment and growth.
- Reducing non-wage labor costs.
  - Deadlines: Feb-12 and Sep-12.
  - Description: Reduce employer share of social security contributions by 5 ppt in a budget-neutral way by rationalizing small earmarked funds (legislation to be completed by end-Feb, with a transition period not to exceed 6 months), reducing pensions, and broadening the base; prepare actuarial study of first pillar occupational pension schemes in companies with excessive social security costs and finalize proposals to eliminate this differential in a fiscally neutral manner.
  - Macroeconomic implications: Improves competitiveness, and promotes employment and growth.
- Liberalization of regulated professions.
  - Deadlines: Feb-12 and Sep-12.
  - Description: By end-Feb., screen and clean legislation for 20 priority professions to be fully in line with the new law opening up restricted professions; by end-March prepare quarterly timetable for 2012; pass required legislation by end-June where reinstatement of restrictions is necessary.
  - Macroeconomic implications: Fosters competition, lowers intermediate costs and promotes investment and growth.
- Liberalization of road freight.
  - Deadline: Feb-12.
  - Description: End the transition period for full liberalization of road freight and establish license price to reflect administrative costs.
  - Macroeconomic implications: Fosters competition, lowers intermediate costs and promotes investment.
- Product market liberalization.
  - Deadline: Apr-12.
  - Description: Screen retail, wholesale, and distribution sectors and prepare an action plan to promote competition and facilitate price flexibility in product markets.
  - Macroeconomic implications: Fosters competition, improves price flexibility and competitiveness.
- Fast-track investment procedures.
  - Deadline: Mar-12.
  - Description: Pass a law improving the functioning of the fast-track investment framework by making it available to more projects, lowering fees, and relaxing financing requirements.
  - Macroeconomic implications: Boosts investment, employment, and growth.
- Simplification of export procedures.
  - Deadlines: Mar-12 and Dec-12.
  - Description: Pass a law codifying the legislative framework of exports, eliminating obligation of registration with exporters’ registry, and establishing e-customs system and electronic export window (to be implemented by end-2012).
  - Macroeconomic implications: Stimulates exports and growth.
- Simplification of business and environmental licensing.
  - Deadlines: Mar-12 and Dec-12.
  - Description: Publish main secondary legislation required to implement the licensing laws for technical professions, manufacturing activities, business parks and environmental licensing by end-March; implement all secondary legislation and introduce an electronic environmental register by end-year.
  - Macroeconomic implications: Simplifies regulations to boost investment.
- Reducing the case backlog in courts.
  - Deadline: Jul-13.
  - Description: Ministry of Justice to reduce tax case backlog per January 2012 work plan, prioritize high-value tax cases exceeding €1 million; complete study on non-tax case backlog by end-June, finalize action plan by end-August with specific targets for clearance of all cases.
  - Macroeconomic implications: Improves system efficiency, recover tax revenues.
- Speeding up case processing.
  - Deadline: Mar-12.
  - Description: New law to improve efficiency of administrative court proceedings by streamlining procedures for group adjudication of similar administrative cases and require submission of decisions in electronic form by administrative and civil judges.
  - Macroeconomic implications: Improves system efficiency.
- Improving the performance and accountability of courts.
  - Deadline: Sep-12.
  - Description: Publish secondary legislation by end-May merging existing courts to reduce their number; by end-March start publishing detailed court information (initially on tax cases) on Ministry of Justice website; design (by end-September) a performance framework for all courts, including dependable data management and workload measurement systems.
  - Macroeconomic implications: Improves transparency and efficiency of courts.
- Reforming the Code of Civil Procedure.
  - Deadline: Dec-12.
  - Description: Establish Task Force by end-March to review the Code of Civil Procedure; Task Force to issue concept paper by end-June; prepare detailed paper by end-December outlining main proposals for amendments.
  - Macroeconomic implications: Improves system efficiency.

### Greece: General Government Financing Requirements and Sources (Table 18) — Billions of Euros (2010–2016)
- Gross borrowing need: 2010: 60.8; 2011: 63.2; 2012: 48.7; 2013: 47.4; 2014: 43.4; 2015: 36.2; 2016: 24.6.
- Overall balance (accrual): 2010: 24.5; 2011: 20.0; 2012: 14.8; 2013: 9.4; 2014: 4.4; 2015: 3.6; 2016: 0.0.
- Amortization: 2010: 28.5; 2011: 37.3; 2012: 48.1; 2013: 36.0; 2014: 43.4; 2015: 32.7; 2016: 22.6.
- MLT (non-official): 2010: 19.6; 2011: 28.1; 2012: 36.3; 2013: 30.9; 2014: 35.7; 2015: 23.7; 2016: 19.0.
- ST (short-term): 2010: 8.9; 2011: 9.2; 2012: 11.8; 2013: 3.5; 2014: 0.4; 2015: 0.4; 2016: 0.4.
- Gross financing sources: 2010: 29.3; 2011: 12.8; 2012: 6.6; 2013: 4.6; 2014: 4.7; 2015: 6.0; 2016: 6.5.
- Privatization receipts: 2010: 0.0; 2011: 1.0; 2012: 3.2; 2013: 4.3; 2014: 4.4; 2015: 5.7; 2016: 5.9.
- Market access (total): 2010: 28.5; 2011: 11.8; 2012: 3.5; 2013: 0.4; 2014: 0.4; 2015: 0.4; 2016: 0.7.
- Official financing already disbursed: 2010: 31.5; 2011: 41.5.
- IMF (3/11): 2010: 10.4; 2011: 9.5.
- Financing gap (including not yet disbursed): 2012 onward shows: ......142.0; 42.7; 38.6; 30.1; 18.1.
- Financing provided by PSI: ......22.8; 19.0; 17.1; 14.6; 13.3.
- Official financing: ......119.2; 23.8; 21.5; 6.6; 1.6.
- Net market access: 2010: 0.0; 2011: 0.3; 2012: -26.8; 2013: -16.5; 2014: -9.3; 2015: -6.7; 2016: -2.8.
- Rollover rates of existing MLT debt (in percent): 2010: 98.5; 2011: 0.0; 2012: 0.0; 2013: 0.0; 2014: 0.0; 2015: 0.0; 2016: 1.6.
- Total Maastricht debt: 2010: 328.6; 2011: 355.8; 2012: 332.4; 2013: 339.4; 2014: 334.1; 2015: 331.1; 2016: 327.3.
- Total Maastricht debt (in percent of GDP): 2010: 144.5; 2011: 165.3; 2012: 163.2; 2013: 167.3; 2014: 160.7; 2015: 153.1; 2016: 145.3.

### Greece: External Financing Requirements and Sources, 2010–16 (Table 19) — Billions of euros
- GROSS FINANCING REQUIREMENTS: 2010: 216.7; 2011: 239.4; 2012: 239.3; 2013: 183.7; 2014: 195.7; 2015: 190.2; 2016: 180.7.
- Current account deficit: 2010: 23.0; 2011: 21.1; 2012: 15.2; 2013: 13.6; 2014: 11.3; 2015: 7.2; 2016: 5.4.
- Medium- and long-term debt amortization: 2010: 22.7; 2011: 35.5; 2012: 38.9; 2013: 18.8; 2014: 28.0; 2015: 19.3; 2016: 9.1.
- Short-term debt amortization: 2010: 171.1; 2011: 182.9; 2012: 185.1; 2013: 151.2; 2014: 156.4; 2015: 163.7; 2016: 166.2.
- SOURCES OF FINANCING: 2010: 185.2; 2011: 197.9; 2012: 120.0; 2013: 159.9; 2014: 174.2; 2015: 174.7; 2016: 175.8.
- New borrowing and debt rollover: 2010: 164.1; 2011: 183.3; 2012: 153.0; 2013: 159.5; 2014: 165.8; 2015: 168.2; 2016: 167.8.
- Short-term borrowing: 2010: 182.9; 2011: 185.1; 2012: 151.2; 2013: 156.4; 2014: 163.7; 2015: 166.2; 2016: 166.5.
- PROGRAM FINANCING: 2010: 31.5; 2011: 41.5; 2012: 119.2; 2013: 23.8; 2014: 21.5; 2015: 6.6; 2016: 1.6.
  - EAMS: 2010: 21.1; 2011: 32.0; 2012: 112.6; 2013: 17.2; 2014: 14.9; 2015: 0.0; 2016: 0.0.
  - IMF: 2010: 10.4; 2011: 9.5; 2012: 6.6; 2013: 6.6; 2014: 6.6; 2015: 6.6; 2016: 1.6.
- UNIDENTIFIED OFFICIAL FINANCING / MARKET ACCESS: 2010–2013: 0.00; 2014: 0.00; 2015: 8.9; 2016: 3.2.
- Memo: Greece IMF quota (SDR millions): 1,101.8; Greece IMF quota (Euro millions): 1,297.0.

### Greece: Schedule of Proposed Purchases under the Extended Arrangement, 2012–16 (Table 20)
- Board approval of EA: March 15, 2012 — Total disbursements: 1,399.1 Millions of SDRs; Percent of quota: 127.0; Billions of Euro 1/: 1.6.
- First Review: May 31, 2012 — 1,399.1; 127.0; 1.6.
- Second Review: August 31, 2012 — 1,399.1; 127.0; 1.6.
- Third Review: November 30, 2012 — 1,399.1; 127.0; 1.6.
- Fourth Review: February 28, 2013 — 1,399.1; 127.0; 1.6.
- Fifth Review: May 31, 2013 — 1,399.1; 127.0; 1.6.
- Sixth Review: August 31, 2013 — 1,399.1; 127.0; 1.6.
- Seventh Review: November 30, 2013 — 1,399.1; 127.0; 1.6.
- Eighth Review: February 28, 2014 — 1,399.1; 127.0; 1.6.
- Ninth Review: May 31, 2014 — 1,399.1; 127.0; 1.6.
- Tenth Review: August 31, 2014 — 1,399.1; 127.0; 1.6.
- Eleventh Review: November 30, 2014 — 1,399.1; 127.0; 1.6.
- Twelfth Review: February 28, 2015 — 1,399.1; 127.0; 1.6.
- Thirteenth Review: May 31, 2015 — 1,399.1; 127.0; 1.6.
- Fourteenth Review: August 31, 2015 — 1,399.1; 127.0; 1.6.
- Fifteenth Review: November 30, 2015 — 1,399.1; 127.0; 1.6.
- Sixteenth Review: February 29, 2016 — 1,399.7; 127.0; 1.6.
- Total: 23,785.3 Millions of SDRs; 2,158.8 Percent of quota; 28.0 Billions of Euro 1/.
  - Note: 1/ Exchange rate of January 5, 2012.

### Greece: Indicators of Fund Credit, 2012–26 (Table 21)
- Prospective drawings (4-year EFF): 2012: 5,596; 2013: 5,596; 2014: 5,596; 2015: 5,596; 2016: 1,400 (in percent of quota): 2012–2015: 508; 2016: 127.
- Amortization (annual): 2012: 0; 2013: 1,472; 2014: 6,278; 2015: 7,299; 2016: 2,726; 2017: 1,166; 2018: 2,099; 2019: 3,031; 2020: 3,848; 2021: 3,964; 2022: 3,731; 2023: 2,798; 2024: 1,866; 2025: 933; 2026: 117.
- Interest and service charge (annual): 2012: 443; 2013: 839; 2014: 1,052; 2015: 986; 2016: 927; 2017: 868; 2018: 808; 2019: 711; 2020: 576; 2021: 413; 2022: 249; 2023: 105; 2024: 28; 2025: 9; 2026: 1.
- Total debt service (annual): 2012: 443; 2013: 2,311; 2014: 7,330; 2015: 8,285; 2016: 3,653; 2017: 2,034; 2018: 2,907; 2019: 3,743; 2020: 4,423; 2021: 4,377; 2022: 3,980; 2023: 2,903; 2024: 1,894; 2025: 942; 2026: 118.
- Total outstanding stock (Millions of SDRs): 2012: 23,138; 2013: 27,263; 2014: 26,581; 2015: 24,879; 2016: 23,552; 2017: 22,386; 2018: 20,288; 2019: 17,256; 2020: 13,409; 2021: 9,444; 2022: 5,713; 2023: 2,915; 2024: 1,049; 2025: 117; 2026: 0.
- Outstanding stock (in percent of quota): 2012: 2,100; 2013: 2,474; 2014: 2,413; 2015: 2,258; 2016: 2,138; 2017: 2,032; 2018: 1,841; 2019: 1,566; 2020: 1,217; 2021: 857; 2022: 519; 2023: 265; 2024: 95; 2025: 11; 2026: 0.
- Outstanding stock (in percent of GDP): 2012: 13.4; 2013: 15.8; 2014: 15.0; 2015: 13.5; 2016: 12.3; 2017: 11.2; 2018: 9.8; 2019: 7.9; 2020: 5.9; 2021: 4.0; 2022: 2.3; 2023: 1.1; 2024: 0.4; 2025: 0.0; 2026: 0.0.
- Memorandum items:
  - Exports of goods and services (in billion of euros): 2012: 51; 2013: 53; 2014: 56; 2015: 60; 2016: 64; 2017: 70; 2018: 75; 2019: 80; 2020: 85; 2021: 90; 2022: 94; 2023: 99; 2024: 103; 2025: 107; 2026: 111.
  - GDP (in billions of Euros): 2012: 204; 2013: 203; 2014: 208; 2015: 216; 2016: 225; 2017: 235; 2018: 245; 2019: 256; 2020: 266; 2021: 277; 2022: 288; 2023: 298; 2024: 309; 2025: 320; 2026: 331.
  - Euro/SDR rate (of January 5, 2011): 1.177.
  - Quota: 1,102.

### Debt Sustainability Analysis — Appendix I: Key inputs for the DSA
- Purpose: Consider sustainability of Greece’s public and external debt under program baseline and stress scenarios; highlight that program can place Greek debt on a sustainable trajectory but significant risks exist that debt declines may be interrupted or reversed by shocks.
- Three sets of inputs underpin the DSA: macroeconomy, policy settings, and financing. These are modeled jointly with policy-to-macro feedbacks.
- Macroeconomic framework:
  - GDP growth: Continued deep recession in 2012 expected to give way to stabilization in 2013, followed by a mild cyclical recovery in 2014–17. Thereafter the economy tracks estimated potential growth (2½ percent per annum initially, falling to 1½ percent in the late 2020s).
  - Adjustments in the path account for: (i) worse-than-expected outturn for 2011; (ii) deterioration in the 2012–13 outlook for Europe (and globally); and (iii) revised package of structural reforms which will deepen the contraction initially but pull forward recovery by improving unit labor costs and competitiveness.
  - Deflator and REER: Mild economy-wide deflation expected in 2012–14; pace of inflation recovers to reach the Euro area average by 2019. Real effective exchange rate overvaluation disappears by 2015 (unit labor cost terms); GDP-deflator based measures correct over another half decade.
  - External conditions: External demand by Greece’s trading partners expected to remain flat in 2012, 4½ percentage points lower than under the WEO fall projections; modest increase starting in 2013 but on average 1 percent lower in the medium-term than previously projected. Cumulative import growth over the program period expected to reach 6½ percent. Terms of trade forecast to worsen by 2½ percentage points in 2012.
- Policy framework:
  - Fiscal adjustment: Primary surplus of 4½ percent of GDP in 2014, stepping down to 4 percent by 2020. Near-term primary deficit of 1 percent in 2012, followed by adjustment of 2¾ percent of GDP in both 2013 and 2014.
  - Privatization: Projected to bring €46 billion over 2012–20, with €12 billion during 2012–14.
  - Financial system support: Cost estimated at €50 billion (versus €40 billion in previous program final review); recoveries through sale of bank equity estimated at about €16 billion.
  - Central government balance sheet adjustments: €7 billion in arrears assumed cleared in 2012–13; deposit buffer of €5 billion by mid-2014 (reduced from previous €11 billion target).
- Financing framework:
  - Private sector involvement (PSI): Assumptions reflect the offer made by Greece to its creditors on February 24 and outcome as of March 9; terms include a reduction in the nominal value of eligible Greek government bonds by [text cut-off in source].
- Overall conclusion in appendix preface: Results show program can place Greek debt on a sustainable trajectory but significant risks remain that shocks could interrupt or reverse debt declines.

*Source: IMF staff projections and tables as provided in the source PDF.*

### 53.5 percent (15 percent paid upfront with EFSF short-term notes acquired by

### _cr1257 - 53.5 percent (15 percent paid upfront with EFSF short-term notes acquired by

### Debt restructuring terms and creditor participation
- PSI composition:
  - 53.5 percent (15 percent paid upfront with EFSF short-term notes acquired by Greece, with the remaining 31.5 percent exchanged into 30-year bonds amortizable after 10 years)
  - Coupons: 2 percent in 2012–15, 3 percent in 2016–20, 3.65 in 2021, and 4.3 percent from 2022 onwards
  - A GDP-linked additional payment (capped at 1 percent of the notional amount of new bonds)
  - A co-financing structure with the EFSF concerning the 15 percent upfront payment
- Pool of eligible debt for the debt exchange: €206 billion (includes Greek and foreign law government bonds and SOE loans guaranteed by the Hellenic Republic)
- Creditor participation rate (per authorities’ results released on March 9): 95.7 percent (assumed on this base, with intention to activate CACs)

### Official sector involvement and official financing
- Eurogroup agreement (February 21, 2012) reflected in OSI assumptions:
  - Reduction in the margin of the Greek Loan Facility (GLF) to a uniform 150 basis points (gain of 2.8 percent of GDP through 2020, and reduction in financing needs of €1.4 billion)
  - Greece to receive, until 2020, the income accruing on bonds held by national central banks in their investment portfolio (amount sufficient to reduce debt-to-GDP in 2020 by 1.8 percentage points and to lower financing needs over the program period by approximately €1.8 billion)
- Official financing assumptions:
  - Funding from euro area member states provided by the EFSF at cost, with loans amortized over a 25-year period (with 10 years grace), and interest paid annually
  - IMF lending calibrated to be on EFF terms

### Market access assumptions
- Post-program market access assumed initially at short maturities and high interest rates, discouraging large issuances
- Continued reliance on official financing (EFSF) in early post-program years
- Conservative assumption: private market financing starts at short maturities and light volumes and gradually increases during the post-program period

### Public Sector DSA — Baseline projections and trajectory
- Baseline projection: debt ratio falls to 116½ percent of GDP in 2020 (Table 1)
  - Improvement relative to projections without PSI at time of 4th and 5th SBA Reviews (130 and 156 percent of GDP respectively)
- Trajectory details:
  - PSI initially reduces debt, but debt spikes to 167 percent of GDP in 2013 due to shrinking economy and incomplete fiscal adjustment
  - Once fiscal adjustment is complete, growth restored, and privatization receipts accrue, steady debt reductions commence
  - Greece would have to maintain good policies through 2030 to reduce the ratio below 100 percent of GDP

### Stress tests — sensitivities and impacts
- Policy sensitivity:
  - If primary balance stays below 1½ percent of GDP (a level it will only marginally exceed in 2013), debt would be on an ever-increasing trajectory
  - Significant shortfalls in privatization proceeds (only €10 billion of €46 billion realized by 2020) would leave debt at 130 percent of GDP by 2020
- Macro parameter sensitivity:
  - With fixed primary balance:
    - Nominal growth permanently lower by 1 percent per annum → debt-to-GDP at 129 percent by 2020
    - Nominal growth permanently higher by 1 percent per annum → debt-to-GDP at 105½ percent by 2020
  - Interest rate sensitivity via official financing rate:
    - If spread on EFSF borrowing were 100 bps higher → debt-to-GDP would reach 121 percent by 2020

### Tailored downside scenario (combined policy and macro delays)
- Key assumptions:
  - Failure to reinvigorate structural reforms delays recovery, raising unemployment and deepening recession
  - Completion of fiscal adjustment delayed by three full years
  - Privatization plans delayed by four years (proceeds through 2020 reduced by €20 billion)
  - Additional financing requirements covered by official sector on EFSF terms (assumes ongoing, albeit slow, progress)
- Outcomes:
  - Debt ratio peaks at 171 percent of GDP in 2014
  - Debt falls to around 145.5 percent of GDP by 2020 once growth recovers, fiscal targets achieved, and privatization resumes
  - Debt likely converges to baseline only in the late 2020s under stronger growth after elimination of competitiveness gap
  - With high debt ratios in next decade, smaller shocks could produce unsustainable dynamics

### Public sector DSA — Selected numerical highlights from Table A1 (Baseline, percent of GDP unless indicated)
- Public sector debt (general government gross debt):
  - 2007: 107.4
  - 2011: 165.3
  - 2012: 163.2
  - 2013: 167.3
  - 2014: 160.7
  - 2015: 153.1
  - 2016: 145.3
  - 2017: 137.5
  - 2018: 130.4
  - 2019: 123.3
  - 2020: 116.5
  - 2030: 88.0
- Change in public sector debt (selected years):
  - 2012: -2.1
  - 2013: 4.2
  - 2014: -6.6
- Identified debt-creating flows (4+7+12) in 2012: 43.6
- Primary deficit (percent of GDP), selected years:
  - 2012: 1.0
  - 2013: -1.8
  - 2014–2020: -4.5 to -4.3 (baseline)
- Revenue and grants: 40.8 (2007) rising to 42.2 (2012) then 40.1 (2015–2020)
- Primary (noninterest) expenditure: 42.8 (2007) to 43.2 (2012) then 35.6–35.8 (2015–2019) and 36.6 (2030)
- Automatic debt dynamics contribution (percent of GDP), 2012: 15.1; 2020: -0.5
- Gross financing need (percent of GDP):
  - 2012: 34.3
  - 2013: 13.0
  - 2014: 14.6
  - 2015: 10.4
  - 2020: 5.8
- Gross financing need in billions of U.S. dollars:
  - 2012: 89.2
  - 2013: 33.6
  - 2014: 38.4
  - 2015: 28.2
  - 2020: 19.3
- Key macro assumptions:
  - Real GDP growth (in percent): 2012: -4.8; 2013: 0.0; 2014: 2.5; 2015: 3.1; 2016: 3.0; 2017: 2.8; 2018: 2.6; 2019: 2.5; 2020: 2.2; 2030: 1.4
  - Average nominal interest rate on public debt (in percent): 2012: 3.3; 2013–2020: 3.4–3.8; 2030: 5.0
  - Inflation rate (GDP deflator, in percent): 2012: -0.7; 2013: -0.5; 2014: -0.1; 2015: 0.8; 2016: 1.0; 2017: 1.3; 2018: 1.6; 2019: 1.8; 2020: 1.9; 2030: 1.9
  - Debt-stabilizing primary balance (percent of GDP): 1.5 (Table A1)

### Alternative scenario highlights (Table A2)
- Public sector debt (alternative scenario, percent of GDP):
  - 2012: 161.7
  - 2013: 169.4
  - 2014: 171.2
  - 2015: 170.5
  - 2020: 145.7
  - 2030: 110.0
- Gross financing need (percent of GDP) in 2012: 34.0; in 2020: 6.9
- Key macro assumptions (alternative):
  - Real GDP growth: 2012: -5.2; 2013: -1.0; 2014: 1.6; 2015: 2.2; 2016–2020: 2.3–2.4
  - Average nominal interest rate on public debt (in percent): 2012: 3.3; 2013: 3.4; 2014–2020: 3.5–3.9; 2030: 5.0
  - Inflation rate (GDP deflator, in percent): 2012: 0.8; 2013: 0.3; 2014: 0.0; 2015: 0.3; 2016: 0.5; 2017: 0.8; 2018: 1.2; 2019: 1.5; 2020: 1.8

### External Sector DSA — Baseline and risks
- Baseline projections:
  - Gross external debt-to-GDP ratio peaks at 203 percent in 2013 and declines to 141 percent by end-2020
  - Net external debt-to-GDP ratio reaches 113 percent in 2013 and declines to 72 percent by end-2020
  - Residents’ build-up of assets abroad expected to peak at around 90 percent of GDP by 2013, with some repatriation in outer years
  - External debt set on sustainable medium-term trajectory driven primarily by improvements in the trade balance, reaching a positive balance by 2016
  - Deep PSI haircut and additional OSI support materially affect debt stock and income balance in the current account, helping secure a debt-stabilizing current account level by 2015
- External-sector sensitivities:
  - Higher current account deficits:
    - A terms of trade shock of about 10 percentage points or delayed structural reform response would keep the current account deficit over 1½ percent of GDP higher than baseline
    - External debt ratio would be significantly higher by about percent of GDP by 2020 (text contains an incomplete percent value)
  - Higher interest rates:
    - A 100 basis points increase in Bund rates would raise the external debt ratio by about 8 percent of GDP in 2020 relative to baseline
  - Lower FDI (shortfall in privatization receipts):
    - External debt ratio would increase by 11 percent of GDP in 2020 compared to the baseline, driven by lower non-debt creating external inflows by almost €25 billion

*IMF staff report content unit: _cr1257 - 53.5 percent (15 percent paid upfront with EFSF short-term notes acquired by*

### 10.      As in the case of public debt, Greece has limited capacity to absorb a combined

### _cr1257 - 10.      As in the case of public debt, Greece has limited capacity to absorb a combined

### External debt outlook and vulnerability
- "On account of lower export performance, a further deterioration in market sentiment, and reduced foreign investment, external debt would end on a significantly higher trajectory, threatening sustainability."
- Debt ratio outcome under the combined shock: "The debt ratio would reach 101 percent of GDP by 2020, 29 percent of GDP higher than under the baseline."

### Net external debt dynamics (selected series from Table A1, in percent of GDP unless otherwise indicated)
- Baseline: External debt
  - 2006: 62.0
  - 2007: 67.7
  - 2008: 75.7
  - 2009: 87.0
  - 2010: 100.0
  - 2011: 114.1
  - 2012: 107.2
  - 2013: 113.1
  - 2014: 111.4
  - 2015: 107.3
  - 2016: 101.7
  - 2017: 94.3
  - 2018: 87.1
  - 2019: 79.1
  - 2020: 71.6
- Change in external debt
  - 2006: 3.9
  - 2007: 5.7
  - 2008: 8.0
  - 2009: 11.3
  - 2010: 13.0
  - 2011: 14.1
  - 2012: -6.9
  - 2013: 5.9
  - 2014: -1.7
  - 2015: -4.1
  - 2016: -5.7
  - 2017: -7.3
  - 2018: -7.3
  - 2019: -7.9
  - 2020: -7.5
- Identified external debt-creating flows (4+8+9)
  - 2006: 1.5
  - 2007: 3.4
  - 2008: 8.8
  - 2009: 8.0
  - 2010: 9.5
  - 2011: 11.6
  - 2012: 9.9
  - 2013: 1.2
  - 2014: -3.0
  - 2015: -6.8
  - 2016: -8.5
  - 2017: -8.7
  - 2018: -8.4
  - 2019: -8.9
  - 2020: -8.9
- Current account deficit, excluding interest payments
  - 2006: 7.3
  - 2007: 9.6
  - 2008: 9.1
  - 2009: 6.0
  - 2010: 5.0
  - 2011: 3.9
  - 2012: 2.5
  - 2013: 1.6
  - 2014: 0.1
  - 2015: -2.0
  - 2016: -3.1
  - 2017: -4.2
  - 2018: -4.9
  - 2019: -5.7
  - 2020: -6.2
- Deficit in balance of goods and services
  - 2006: 9.5
  - 2007: 11.0
  - 2008: 11.6
  - 2009: 7.8
  - 2010: 6.6
  - 2011: 5.8
  - 2012: 4.2
  - 2013: 3.0
  - 2014: 1.7
  - 2015: 0.4
  - 2016: -0.8
  - 2017: -2.2
  - 2018: -3.3
  - 2019: -4.3
  - 2020: -5.0
- Exports (percent of GDP)
  - 2006: 21.2
  - 2007: 21.5
  - 2008: 23.1
  - 2009: 18.3
  - 2010: 20.0
  - 2011: 22.7
  - 2012: 24.8
  - 2013: 25.9
  - 2014: 26.8
  - 2015: 27.7
  - 2016: 28.6
  - 2017: 29.6
  - 2018: 30.5
  - 2019: 31.2
  - 2020: 31.8
- Imports (percent of GDP)
  - 2006: 30.6
  - 2007: 32.5
  - 2008: 34.7
  - 2009: 26.1
  - 2010: 26.7
  - 2011: 28.5
  - 2012: 29.1
  - 2013: 28.9
  - 2014: 28.6
  - 2015: 28.1
  - 2016: 27.8
  - 2017: 27.4
  - 2018: 27.1
  - 2019: 26.9
  - 2020: 26.9
- Net non-debt creating capital inflows (negative)
  - 2006: -3.7
  - 2007: -4.3
  - 2008: -2.0
  - 2009: -0.9
  - 2010: 0.3
  - 2011: -1.2
  - 2012: -2.0
  - 2013: -3.2
  - 2014: -3.0
  - 2015: -3.1
  - 2016: -3.8
  - 2017: -4.2
  - 2018: -3.4
  - 2019: -3.1
  - 2020: -3.1
- Automatic debt dynamics 1/
  - 2006: -2.1
  - 2007: -1.9
  - 2008: 1.7
  - 2009: 2.9
  - 2010: 4.2
  - 2011: 8.9
  - 2012: 9.4
  - 2013: 2.8
  - 2014: -0.2
  - 2015: -1.7
  - 2016: -1.6
  - 2017: -0.2
  - 2018: -0.1
  - 2019: -0.1
  - 2020: 0.3
- Residual, incl. change in gross foreign assets (2-3)
  - 2006: 2.5
  - 2007: 2.3
  - 2008: -0.8
  - 2009: 3.3
  - 2010: 3.5
  - 2011: 2.5
  - 2012: -16.7
  - 2013: 4.7
  - 2014: 1.4
  - 2015: 2.7
  - 2016: 2.8
  - 2017: 1.3
  - 2018: 1.1
  - 2019: 1.0
  - 2020: 1.4
- External debt-to-exports ratio (in percent)
  - 2006: 292.9
  - 2007: 314.2
  - 2008: 327.3
  - 2009: 476.5
  - 2010: 499.0
  - 2011: 502.7
  - 2012: 431.7
  - 2013: 436.4
  - 2014: 415.4
  - 2015: 387.5
  - 2016: 355.0
  - 2017: 318.5
  - 2018: 285.8
  - 2019: 253.3
  - 2020: 224.9
- Gross external financing need (in billions of euros)
  - 2006: 73.9
  - 2007: 93.2
  - 2008: 122.9
  - 2009: 194.4
  - 2010: 216.7
  - 2011: 239.4
  - 2012: 239.3
  - 2013: 183.7
  - 2014: 195.7
  - 2015: 190.2
  - 2016: 180.7
  - 2017: 179.6
  - 2018: 171.0
  - 2019: 167.5
  - 2020: 159.5
- Gross external financing need (in percent of GDP)
  - 2006: 35.1
  - 2007: 41.2
  - 2008: 52.8
  - 2009: 83.9
  - 2010: 95.3
  - 2011: 111.2
  - 2012: 117.5
  - 2013: 90.6
  - 2014: 94.1
  - 2015: 88.0
  - 2016: 80.2
  - 2017: 76.5
  - 2018: 69.8
  - 2019: 65.5
  - 2020: 59.9

### Shocks, scenarios, and stress tests (Figure A1 annotations and results)
- Scenario with key variables at their historical averages 5/: 116.7; 101.4; 105.2; 106.1; 108.0; 109.8; 111.4; 112.8; 114.1; 115.5 (presented as a multi-year series in Figure A1).
- Non-interest current account shock 2/: "Current account balance lower by 1.6 percent of GDP due to delayed program implementation and terms-of-trade shock."
- Interest rate shock 3/: "Impact of 100bps shock to Bund rates on Greece's official interest rates and income balance."
- FDI shock 4/: "Decline in FDI due to reduced privatization receipts."
- Combined shock: outcome label "Combined shock scenario" with resulting net external debt reaching 101 (percent of GDP) in 2020 as noted above.

### Key macroeconomic assumptions underlying the baseline (selected series)
- Real GDP growth (in percent)
  - 2006: 4.5
  - 2007: 4.5
  - 2008: -1.6
  - 2009: -3.3
  - 2010: -3.5
  - 2011: -6.8
  - 2012: -4.8
  - 2013: 0.0
  - 2014: 2.5
  - 2015: 3.1
  - 2016: 3.0
  - 2017: 2.8
  - 2018: 2.6
  - 2019: 2.5
  - 2020: 2.2
- GDP deflator (change in percent)
  - 2006: 3.1
  - 2007: 3.0
  - 2008: 3.5
  - 2009: 2.8
  - 2010: 1.7
  - 2011: 1.6
  - 2012: -0.7
  - 2013: -0.5
  - 2014: -0.1
  - 2015: 0.8
  - 2016: 1.0
  - 2017: 1.3
  - 2018: 1.6
  - 2019: 1.8
  - 2020: 1.9
- Nominal external interest rate (in percent) 6/
  - 2006: 3.8
  - 2007: 4.3
  - 2008: 4.4
  - 2009: 3.3
  - 2010: 2.9
  - 2011: 3.1
  - 2012: 2.4
  - 2013: 2.2
  - 2014: 2.3
  - 2015: 2.5
  - 2016: 2.6
  - 2017: 2.6
  - 2018: 2.6
  - 2019: 2.5
  - 2020: 2.7
- Growth of exports (euro terms, in percent)
  - 2006: 7.4
  - 2007: 9.6
  - 2008: 10.4
  - 2009: -21.5
  - 2010: 7.7
  - 2011: 7.2
  - 2012: 3.6
  - 2013: 3.9
  - 2014: 6.1
  - 2015: 7.4
  - 2016: 7.6
  - 2017: 7.8
  - 2018: 7.3
  - 2019: 7.1
  - 2020: 6.2
- Growth of imports (euro terms, in percent)
  - 2006: 20.2
  - 2007: 14.3
  - 2008: 9.6
  - 2009: -25.2
  - 2010: 0.3
  - 2011: 1.4
  - 2012: -3.6
  - 2013: -1.0
  - 2014: 1.2
  - 2015: 2.2
  - 2016: 3.1
  - 2017: 2.9
  - 2018: 3.2
  - 2019: 3.7
  - 2020: 3.8
- Current account balance (percent of GDP)
  - 2006: -11.3
  - 2007: -14.4
  - 2008: -14.9
  - 2009: -11.1
  - 2010: -10.1
  - 2011: -9.8
  - 2012: -7.5
  - 2013: -6.7
  - 2014: -5.4
  - 2015: -3.3
  - 2016: -2.4
  - 2017: -1.1
  - 2018: -0.1
  - 2019: 1.1
  - 2020: 1.2
- Net non-debt creating capital inflows
  - 2006: 3.7
  - 2007: 4.3
  - 2008: 2.0
  - 2009: 0.9
  - 2010: -0.3
  - 2011: 1.2
  - 2012: 2.0
  - 2013: 3.2
  - 2014: 3.0
  - 2015: 3.1
  - 2016: 3.8
  - 2017: 4.2
  - 2018: 3.4
  - 2019: 3.1
  - 2020: 3.1

### Policy implications and program objectives (from MEFP and related text)
- Core policy goals:
  - "Address Greece’s balance of payments problems, correct Greece’s competitiveness gap, support growth and employment; restore public finances to sustainability; secure financial system stability, and to distribute the cost of adjustment in an equitable way, within our commitment to the common currency."
- Policy strategy highlights:
  - Accelerate implementation of structural reforms in labor, product, and service markets to restore competitiveness and growth, including upfront nominal wage cuts and collective bargaining reform (prior action taken: minimum wage reduction as prior action).
  - Implement bold structural spending and revenue reforms to bring the fiscal deficit to a sustainable position; tax reform to broaden the tax base and tax administration reforms to stem tax evasion (prior actions taken to strengthen tax administration).
  - Adopt a comprehensive banking sector strategy: restructure and recapitalize the banking system following the upcoming sovereign debt exchange; completed capital needs assessment and plan for a large state-owned bank as prior actions; strengthened resolution and recapitalization framework and financial oversight framework as prior actions.
  - Commit to ambitious privatization plans to reduce the government's footprint and encourage private investment.
  - Strengthen government capacity and administrative reform to improve public service delivery, fiscal management, and implementation of reforms.
- Program financing and monitoring:
  - Request for a 4 year arrangement under the Extended Fund Facility (EFF) in the amount of SDR 23.7853 billion (2,158.8 percent of quota; €28 billion).
  - Notification of cancellation of existing SBA effective March 14, 2012; parallel request for financial assistance to euro area member states for a total amount of €144.7 billion over 2012-14.
  - Implementation monitored by the Fund through quarterly reviews, quantitative performance criteria and indicative targets, and structural benchmarks; "There will be 16 quarterly reviews under the arrangement."

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

### 3.      Nonetheless, the government recognizes that eliminating Greece’s large initial

### 3.      Nonetheless, the government recognizes that eliminating Greece’s large initial

### Economic outlook and adjustment path
- Real GDP is expected to recover to positive quarter-on-quarter growth rates during 2013.
- Short-term projection: GDP is projected to contract by another 4–5 percent cumulatively in 2012–13 on account of the worsened external environment, the needed fiscal consolidation, private sector wage adjustment, and adjustments in the banking system.
- Program assumptions supporting recovery:
  - Business sentiment benefits from the successful implementation of the PSI operation.
  - Economic activity and employment growth gather momentum as unit labor costs decline, productivity-enhancing structural reforms are implemented, and fiscal adjustment is completed.
- Competitiveness:
  - Programmed to improve at an accelerated pace, supported by upfront labor market reforms and a comprehensive set of product market reforms.
  - Inflation is projected to drop significantly below the euro area level as cost-reducing reforms and wage reductions filter through to prices.
  - It should be possible to significantly shrink the competitiveness gap relative to trading partners by the end of the program period, with continued adjustment thereafter to fully eliminate the gap.
- External balance:
  - Projected to adjust only modestly in the remainder of 2012 given deteriorating global conditions.
  - As domestic demand contracts and competitiveness improves, the pace of external adjustment should pick up.
  - It is projected to take some time before Greece’s current account deficit falls to a level that will allow Greece’s external debt to steadily decline.

### Public debt and program financing
- Under the program baseline, public debt will remain high during the program period, but is projected to fall to about 120 percent of GDP by 2020, with continued declines thereafter.
- Given the lengthy period of elevated debt levels and continued vulnerability to shocks, full and timely policy implementation is critical to realize this debt trajectory.

### A. Fiscal policy — targets and strategy
- Primary surplus target: general government primary surplus of 4½ percent of GDP by 2014.
  - 2012 fiscal target adjusted to a primary deficit of 1 percent of GDP (versus previous target of a small surplus).
  - Targeted adjustment of 2¾ percent of GDP in the primary balance in both 2013 and 2014.
  - Will consult with the EC, ECB, and IMF in the event of a significantly deeper than anticipated recession to evaluate whether the fiscal adjustment path should be extended beyond 2014.
- Measures needed to reach 4½ percent of GDP primary surplus by 2014:
  - 1½ percent of GDP in measures in 2012.
  - 1½ percent of GDP in tax administration improvements.
  - 5½ percent of GDP in spending measures in 2013-14.
- Bulk of adjustment through expenditure cuts aimed at permanently reducing the size of the state and improving government efficiency, including closing entities and targeted reductions in public employment.
- Social transfers will bear many cuts, but specific measures will protect the core social safety net and the most vulnerable.

### Key fiscal reforms and measures
- Public sector wage bill reductions:
  - Aim to bring general government wage bill into line with most efficient OECD countries, yielding 1½ percent of GDP in savings by 2015, including ¼ percent of GDP in new savings not captured in the existing MTFS.
  - Combine reforms of employee compensation with personnel reductions.
  - Reform of special wage regimes (account for about one-third of the public sector wage bill) by end-June:
    - Adjust the wage grid for special regimes effective July 1, 2012 (including judges, diplomats, doctors, professors, police and armed forces), protecting those at lower pay scales, to realize permanent net savings of about 0.2 percent of GDP on an annual basis.
    - Review the new promotion system to control wage drift.
  - Personnel reductions:
    - Committed to reduce general government employment by at least 150,000 in the period 2011–15.
    - Continue strict 1:5 hiring to attrition ratio (1:10 for state-owned enterprises), pre-retirement scheme, reduce contractual employment, and furlough enough redundant public employees into the labor reserve by end-2012 to achieve 15,000 mandatory separations.
  - Controls on hiring:
    - Reduce annual intake into public sector schools to align with hiring plans.
    - Augment the labor reserve annually.
    - Eliminate vacant positions in public sector restructuring.
    - Immediate hiring freeze if slippages emerge.

- Rationalizing and better targeting of social spending:
  - Objective to contain projected increase in pension spending to less than 2½ percentage points of GDP by 2060 (from a projection of 12½ percent of GDP), maintain public health expenditures at about 6 percent of GDP, and improve targeting of social benefits.
  - Intent to realize around 4 percent of GDP in additional savings while improving programs for those most in need.
  - Pension reform upfront measures generating savings of about €450 million in 2012 (0.2 percent of GDP):
    - Reduce with a progressive schedule supplementary pensions above €200 per month.
    - Adopt a framework law to eliminate structural deficit in supplementary pension funds over time.
    - Reduce by 12 percent the part for main pensions exceeding €1,300 a month.
  - By end-June, introduce reforms to eliminate arrears and deficits in lump sum pension funds.
  - Health spending targets:
    - For 2012, set target to reduce public spending on outpatient pharmaceuticals from 1.9 to 1⅓ percent of GDP.
    - Upfront actions: promotion of generics (compulsory prescription by active substance), reduce by about 15 percent the maximum price of generic relative to branded medicines, reduction in margins of pharmacists, extend the coverage of copayments.
    - Automatic claw back mechanism to guarantee outpatient pharmaceutical spending for 2012–15 will not exceed budget limits.
    - Merge all health funds in EOPYY and move its responsibility to the Ministry of Health; introduce new contracts for physicians and adopt uniform purchase conditions.
  - Other social benefit programs:
    - Improve targeting of family allowances by excluding high income earners as an upfront measure.
    - Undertake a thorough review to identify 1½ percent of GDP in additional measures to be taken over 2013–14; review to be completed by end-June 2012.

- Restructuring of government operations:
  - Upfront actions to meet 2012 fiscal target:
    - Curtail operational spending and selected subsidies and transfers at central government level by an additional 0.2 percent of GDP (compared to the 2012 budget).
    - Reduce investment subsidies and lower-priority investment projects by 0.2 percent of GDP (compared to the 2012 budget).
  - Deeper restructuring:
    - By end-June 2012, complete a plan to restructure government operations and achieve additional savings of at least 1 percent of GDP over 2013–14.
    - Focus on closing and downsizing general government units, outsourcing opportunities, identifying redundancies, restructuring central and local public administrations, and rationalization of defense spending (without compromising defense capabilities).

### Tax system and revenue administration reforms
- Tax reform objectives:
  - Introduce a budget-neutral tax reform to simplify the tax system, broaden the tax base to allow reductions in selected tax rates, and rebalance the tax burden to foster growth and competitiveness.
  - Full schedule of intermediate steps including public consultation, review by EC/ECB/IMF staff, and release of formal proposal for discussion; present to parliament and enact reform legislation by end June 2012.
  - Reform package to include:
    - Repeal of the Code of Books and Records and replacement by simpler legislation.
    - Elimination of several tax exemptions and preferential regimes.
    - Simplification of the VAT and of the property tax rate structure.
    - More uniform tax treatment of individual capital income.
    - Simplified personal and corporate income tax schedule.
- Revenue administration reforms:
  - Reforms assumed to provide only back loaded gains, limited to 1½ percent of GDP over the period 2011–15 and expected to accrue only from 2013.
  - Near-term priority: strengthen operations including dispute resolution, anti-money laundering integration, personnel upgrades, and anti-corruption measures.
    - Dispute resolution upfront actions:
      - Approve legislation making it compulsory for large tax cases to exhaust the administrative dispute phase before accessing judicial appeals.
      - Tighten rules for waiving the deposit to access judicial appeals.
      - Issue secondary legislation enabling certification of tax arbitrators to make the arbitration system fully operational.
    - Anti-money laundering tools:
      - Clarify Bank of Greece’s rules on financial institutions’ obligations to detect and report to the Financial Intelligence Unit (FIU).
      - Ensure complaint reports related to confirmed unpaid tax debts are transmitted to prosecution services and to the FIU.
    - Personnel upgrades:
      - By April, complete reassessment and hiring of 1,000 auditors and gradually bring numbers to 2,000 (consistent with public sector attrition and hiring rules).
      - Establish a formal performance review framework operational by June 2012 to evaluate manager performance; replace underperforming managers.
    - Anti-corruption measures:
      - By end-June 2012, set up internal affairs services established in Law 3943/2011 and reform role of financial inspection unit to focus on revenue administration.
      - Improve whistle-blower protection, introduce rotation procedures for managers, and set targets for audits of asset declarations of tax administration officials.
      - By end-September, prepare a fully-fledged anti-corruption plan.
  - Structural reorganization steps for 2012:
    - Establish key functional units (large taxpayer unit, debt collection unit, audit department); by end-March increase debt collection directorate staff by 50; by second quarter complete doubling of audit capacity of the large taxpayer unit.
    - Close a total of 200 underutilized local tax offices by end-December 2012.
    - By end-March 2012, GSTC headquarters to set operational targets for local tax offices and be given legal powers to direct local resource use; collection of large debts consolidated in the largest 35 tax offices.
    - Processing of all tax payments in local offices to be discontinued by end-September 2012 and replaced by mandatory bank transfers and payments at banks.
    - By end-March, appoint as Secretary General of the revenue administration an individual with an impeccable track record; delegate control over core business activities and human resource management from ministerial to administrative level; ensure external audit of tax administration headquarters activities.
  - Collection of social security contributions:
    - Develop a fully articulated reform plan by end-September 2012 to integrate tax and contribution collections.
    - Near-term actions by March 2012: expand monthly declarations to a wider range of large taxpayers, unify collection of tax and social security contribution debts of largest tax debtors, enact common audits of tax and social security contribution of large taxpayers, increase inspections and set targets for inspectors.

- Compliance and enforcement stance:
  - Government undertakes to fully enforce the tax code and to forego any tax amnesties.
  - Commit not to implement any new or extend any existing amnesties or incentive schemes for collection of taxes and social security contributions.
  - Amend law 4038/2012 to restrict the extension of payment terms for tax debt and overdue social security contributions and the suspension of criminal prosecution and asset freezing, in line with good international practices.

### Implementation safeguards and contingency
- Commitment to deliver the fiscal target and readiness to take corrective measures in case of underperformance, including additional targeted reductions in public sector wage bill and social transfer expenditures.
- In case of sustained over performance deemed permanent, intention to tighten deficit targets and possibly consider a reduction in social contribution rates.
- Intend to maintain the relative tax burden from indirect taxes.
- Prior actions and benchmarks:
  - Prior actions: (i) fully implement all overdue measures (Annex I); and (ii) enact and implement measures needed to reach the fiscal deficit target in 2012 (Annex II).
  - Structural benchmarks for end-June 2012: adoption of a budget-neutral tax reform; completion of reviews of social spending programs and government functions that identify, respectively, 1½ and 1 percent of GDP in additional measures.
  - Identification and enactment (where feasible) of all measures necessary to attain the medium-term fiscal target is an over-arching condition for completion of the first program review.

*Source: _cr1257 - 3.      Nonetheless, the government recognizes that eliminating Greece’s large initial*

### 13.      We are determined to secure tighter control over all general government

### 13.      We are determined to secure tighter control over all general government spending and to prevent the accumulation of arrears

### Budgeting and spending controls
- Objective: Improve every step of the spending process—budgeting procedures; commitment-based spending controls; and fiscal reporting and budget monitoring.
- Budgeting actions:
  - Issue a circular during Q1 2012 regulating the calendar, deadlines, and the role of all institutions in formulating the next MTFS (covering 2012–6).
  - Adopt legislation and regulations by October 2012 to streamline submission and approval procedures of within-year supplementary budgets.
- Commitment-based spending controls:
  - Commitment registers:
    - By March 2012, begin to extend registers to cover the investment budget.
    - By June 2012, increase the number of fully functional commitment registers reporting on the e-portal of the Ministry of Finance to 70 percent of spending units, including in local governments, social security funds, extra budgetary funds, and hospitals.
    - Enact sanctions (when needed) to improve data reporting from commitment registers.
    - Expand the content of the e-portal reporting system to include the whole expenditure cycle (e.g. cumulative appropriations released, commitments made, invoices received, and payments made at the end of each month).
  - Accounting officers:
    - Permanent accounting officers appointed in all line ministries.
    - Responsible for line ministries’ financial management, including budget formulation, spending controls, and data reporting.
    - Accounting officers obliged to adopt and implement new organizational plans for their directorates by end-June 2012.
  - Revised audit procedures:
    - Progressive devolution of financial responsibility to accounting officers.
    - Reform functions of financial audit offices in line ministries and the Court of Audit.
    - Shift away from preventive audits towards ex-post quality audits, and reconfigure financial information systems.

### Fiscal reporting and clearance of arrears
- Fiscal reporting improvements in 2012:
  - Expand arrears data base to cover tax refunds, and establish standards for their processing and payment (by end-June 2012).
  - Make operational by end-March the inter-ministerial committee to monitor, control, and report on the implementation of the social budget.
  - Expand recently piloted information systems to collect more detailed revenue and spending data from general government entities; the new system will cover more than 90 percent of spending by end-June 2012.
- Clearance of domestic arrears:
  - Expectation to clear existing domestic arrears in line with available program financing.
  - The 2012 budget includes a budget appropriation, based on the end-2011 outturn.
  - Conditions to access the appropriation include:
    - Verification of arrears claims.
    - Compliance with basic financial management reforms described above.
    - Line ministries and general government entities requesting access must demonstrate they have not accumulated any further arrears and have reported at least three months of consistent data from commitment registers.

### Strengthening statistics agency (El.Stat)
- Revise the statistics law to reform El.Stat’s governance arrangements.
- Law will:
  - Establish the El.Stat Board as advisory.
  - Clarify the professional authority of El.Stat’s president as the institution’s chief officer and coordinator of the national statistical system.

### Prior actions and program monitoring
- Prior actions to secure early gains:
  - Implement measures to strengthen tax administration operations, including meeting end-2011 performance targets, reversing a recent amnesty, tightening administrative regulations, and strengthening delegation of powers to the revenue administration.
- Monitoring:
  - Set and monitor targets for quantified quarterly performance indicators for revenue administration and public financial management (see Technical Memorandum of Understanding for full description).
  - Targets for end-June 2012 and end-December 2012 are proposed as structural benchmarks.
  - Additional structural benchmark: completion of the strategy for strengthening social security collections (by end-September 2012).

### Financial sector policies — objectives and broad strategy
- Objective: Provide support needed to restore confidence in the Greek banking system; ensure soundness of the banking system and maintain depositor confidence.
- Strategy: Well-targeted recapitalization and resolution actions, legal changes to facilitate the strategy and improve financial oversight, support banking system liquidity, create a viable and well-capitalized private banking sector, and protect depositors.

### Financial sector reform elements and timelines
- Capital requirements and assessments:
  - All banks required to achieve a core tier 1 capital ratio set at 9 percent by end-September 2012, reaching 10 percent in June 2013.
  - Bank of Greece (BoG), with support of external consultants, will undertake an assessment of banks’ capital needs (prior action).
  - Capital needs assessment to be based on, inter alia, results from the BlackRock loan diagnostic exercise, the PSI impact, and banks’ business plans.
  - Banks’ capital needs will also be determined on the basis of maintaining a 7 percent core tier 1 capital ratio under a three year adverse stress scenario (Pillar II requirements).
  - Based on capital needs identified by the BoG, banks will revise business plans and submit capital raising plans by end-March 2012.
- Strategic assessment of banks:
  - BoG to conduct a thorough assessment of each bank in consultation with the EC/ECB/IMF.
  - Assessment criteria include: shareholders’ soundness and willingness to inject new capital; quality of management and risk management systems; capital, liquidity, and profitability metrics (both forward and backward looking); BoG’s assigned ratings to bank risks; and a sustainable business model.
  - Assessment to be complete by end-March 2012 (proposed as a structural benchmark).
- Agricultural Bank (ATE):
  - Ministry of Finance to complete a study on how to address ATE (as a prior action), illustrating legal, operational, and financial aspects of different solutions and associated costs.
- Recapitalization and resolution actions:
  - Banks given time to raise capital in the market; BoG to communicate, by end-April, specific deadlines to raise capital in the market based on viability and plans.
  - Deadlines set on a case-by-case basis—with a maximum duration to end-September—considering regulatory framework and Hellenic Capital Market Commission requirements.
  - Banks submitting viable capital raising plans may apply for and receive public support that preserves private sector incentives; access to HFSF through common shares and contingent convertible bonds.
  - HFSF voting rights for common shares strictly limited to specific strategic decisions unless private participation via common shares is less than a given minimum percentage of the bank's total capital needs (percentage to be defined in the amended HFSF law).
  - Shares and/or voting rights acquired by the HFSF shall not be transferred or sold to any other state-related entity in any form.
  - A ministerial decision in line with EC, ECB and IMF advice shall provide technical details of banks' recapitalization framework by end-March 2012 (proposed as a structural benchmark).
  - Banks that do not submit viable capital raising plans and do not raise required capital within the BoG deadline will be resolved in an orderly manner and at the lowest cost to the State, ensuring financial stability and following the overall strategic plan for resolved banking system assets.
  - Resolution options include purchase and assumption (transfer order), interim credit institutions (bridge banks), and orderly wind down.
- Follow up stress test:
  - BoG will by end-June 2013 conduct a new stress test exercise, based on end-2012 data, using a methodology determined in consultation with the EC/ECB/IMF (proposed as a structural benchmark).

### Legislative actions to support recapitalization and resolution (prior actions)
- Capital adequacy requirements:
  - Amend banking law (3601) to enable BoG to set new bank capital standards through regulation.
  - BoG to introduce regulations to phase in increases in Core Tier 1 requirements.
- Technical aspects of bank resolution:
  - Clarify procedures and responsibilities for valuation of assets and liabilities and for the opening balance sheet of interim credit institutions.
  - Clarify that resolution should proceed in a manner that minimizes costs to the HFSF.
  - Strengthen framework to ensure future resolutions initially use conservative asset valuations of failed banks’ assets, based on fair value, with subsequent due diligence and revaluation followed by complementary asset transfers within a specified time period.
  - Identify legislative impediments to flexible management of employment contracts in bank resolutions and adopt needed legislative changes to remove them.
- Recapitalization framework (HFSF law amendments):
  - Allow use of contingent convertible bonds and provide for restrictions on HFSF voting rights for a 5 year period.
  - HFSF voting rights for common shares depend on size of private investor injection via common shares:
    - If private injection is below a given minimum percentage of a bank’s total capital needs (to be defined in HFSF law), HFSF will have full voting rights.
    - HFSF shall hold its shares for a period of two years, with possibility to extend for an additional two years for financial and market stability reasons.
    - If private injection is larger than this percentage, HFSF voting rights will be strictly limited to specific strategic decisions and HFSF may hold bank shares for five years.
- Resolution framework:
  - Introduce clear separation of supervisory, resolution and restructuring functions.
  - Legal framework to vest resolution responsibilities in a separate department in the BoG and restructuring responsibilities (management of all temporary credit institutions) in the HFSF.
  - BoG to continue pursuing financial stability role via supervisory authority; HFSF to safeguard its investments and manage restructuring.
- Framework for managing non-performing loans:
  - During Q2 2012 prepare changes to legal framework for addressing non-performing loans and those at risk of becoming non-performing, with input from international experts and in line with EC/ECB/IMF advice.
  - Guiding principles include: target interventions in line with fiscal and financial sector capacity; preserve payment culture and avoid strategic loan defaults; maximize asset recovery; and facilitate market distinctions between rehabilitation of viable borrowers and efficient exit of non-viable borrowers.

### Funding, liquidity, and governance of financial safety nets
- Funding for recapitalization and resolution:
  - Total bank recapitalization needs and resolution costs are estimated to amount to €50 billion.
  - Timing of transfers to the HFSF will consider expected timeline for bank resolution and recapitalization, and requirements for continued ECB liquidity support.
  - Funds received via program disbursements will be deposited in the HFSF’s ring-fenced account.
- Central bank liquidity support:
  - BoG, following Eurosystem procedures and rules, will stand ready to continue disbursing emergency liquidity support in a timely manner.
  - Adequate near-term liquidity support must be consistent with plans to reduce banks’ reliance on exceptional central bank support in the medium term.
  - Medium-term funding plans to be updated after completion of recapitalization and restructuring to ensure gradual unwinding of exceptional liquidity support is consistent with the program’s macroeconomic, fiscal, and financial framework.
- Hellenic Financial Stability Fund (HFSF) governance (prior action):
  - Reorganize HFSF to have two departments:
    - Department responsible for managing ownership interest in banks on behalf of the government, with mandate to ensure banks operate on a commercial basis and can be returned to private ownership.
    - Department for management of interim credit institutions (bridge banks), established after resolution of non-viable banks, operating cost-effectively based on a comprehensive strategy agreed by BoG, MoF and HFSF and in compliance with EU state aid rules. Funding for this function may be reduced partly or entirely by a contribution from the HDIGF Depositor Branch to the extent of its deposit insurance obligations.
  - Legislative changes to HFSF governance structure to include a General Council and an Executive Board:
    - General Council: five members — two members, including the Chair, with relevant international experience in banking; one other member; one representative from the MoF; and one member nominated by the BoG. All members appointed by the Minister of Finance with approval of the Euro Working Group (EWG) other than the MoF representative and the BoG nominee. EC and ECB observers on the Council will be maintained.
    - Executive Board: three members — two members (one of which shall be the CEO) with international experience in banking and bank resolution, and one member nominated by the BoG. All members appointed by the Minister of Finance with approval of the EWG. Staff and officials of the BoG shall not sit on the Board of the HFSF. EC and ECB observers will be present on the Executive Board.
  - Adopt regulations, in consultation with HFSF, to help HFSF execute its mandate with full autonomy while coordinating with the MoF; regulations to cover reporting lines and frequencies, strategic decision-making (and MoF involvement), investment mandate and business plan, relationship with the MoF (as shareholder), and remuneration policy.
- Hellenic Deposit & Investment Guarantee Fund (HDIGF) Depositor Branch:
  - Strengthen funding by revising HDIGF Law to:
    - Prescribe that fees shall be increased if funds fall below a certain level of coverage of insured deposits, set taking due account of financial system developments.
    - Ensure adequate diversification of re-deposits of HDIGF funds and gradually eliminate re-deposits in covered banks as restructuring permits.
    - Clarify that HDIGF’s status as privileged creditor does not impinge on claims secured with financial collateral in the sense of the financial collateral directive.
  - Prohibit HDIGF board membership for individuals actively involved in credit institutions and introduce strong conflict of interest rules for Board members.

### Bank of Greece governance reform
- Revise the BoG Statute to:
  - Provide for collegial decision-making at the level of executives (Governor and Deputy Governors).
  - Ensure ongoing accountability through internal oversight by nonexecutives in the General Council (including oversight in matters other than ESCB-related tasks).
  - Revise structure and rights of BoG shareholders to eliminate possible conflicts of interest in BoG’s public policy role (e.g., prohibit supervised institutions from shareholdings and set a cap on the number of votes that each or related private shareholders can exercise).
- Proposed structural benchmark: BoG governance reform by end-December 2012.

*Source: _cr1257 - 13.      We are determined to secure tighter control over all general government*

### 23.      Under the program, we aim to accomplish a fundamental shift of public assets

### _cr1257 - 23.      Under the program, we aim to accomplish a fundamental shift of public assets

### Privatization program objectives and expected proceeds
- Objective: shift public assets to private sector control to encourage FDI and private investment, support economic recovery and long-term growth, and reduce public debt to support Greece’s return to bond markets.
- Target proceeds: €50 billion in proceeds over the lifetime of the asset sale program, including at least €19 billion through 2015.
- Timing expectation: many assets are encumbered and current poor market conditions mean realization of full proceeds may take time beyond the program period.
- Adjustment mechanism: the government will annually update expected value of proceeds and, if proceeds fall short, will identify additional assets to bring into the program, including stakes in public corporations not currently included.
- Constraint: no public assets will be transferred to the recently established pension fund SPV; EC/ECB/IMF staff will be consulted on managing the SPV.
- Monitoring: progress will be monitored via quarterly indicative targets.

### Assets included and process stages
- Types of assets: state enterprises, concessions, real estate (Annex IV), and any bank assets previously owned or to be acquired during recapitalization.
- General privatization stages:
  - Transfer asset to the privatization fund and appoint advisors.
  - Restructure the asset.
  - Fill public policy and regulatory policy gaps.
  - Design the tender process.
  - Obtain EC clearances (procurement, competition, state aid).
  - Run the tender.
  - Obtain necessary by-law approvals.

### Planned actions to advance privatization in 2012
- Appointment of advisors:
  - Expectation to appoint by end-March 2012 all remaining advisors for thirteen 2012/13 projects lacking advisors.
- Transfer of assets to HRADF:
  - By end-March 2012, all assets included in the MTFS will be transferred, except banking shares and loss making assets HRADF cannot finance before privatization (TRAINOSE, ELVO, EAS).
  - Remaining balance of shares of two large ports (OLP and OLTH) will be transferred.
  - Real estate assets will be transferred at HRADF’s request from the Government Real Estate Company (ETAD).
  - Shares transferred or to be transferred will be provided their voting rights in full to enable HRADF to make necessary changes for swift privatization.
- Preparations of state-owned enterprises:
  - Work with EU authorities to obtain clearance for state aid for the lottery, DEPA/DESFA, EAS, OPAP and ODIE.
  - Develop necessary regulatory frameworks with assistance from the EU Task Force for Greece.
  - Ministries and public bodies to expedite administrative decisions and/or special legislation to facilitate privatizations.
- Preparation of real estate assets:
  - Government will correct legal and technical deficiencies, expedite zoning, and issue required permits.
  - Requested technical assistance from the Task Force to develop a comprehensive land registry.
  - HRADF will register 3,000 plots by end-June.
- Policy coordination:
  - Formulate new policies regarding asset use (e.g. town planning, REITS).
  - Set up new regulatory authorities and frameworks (e.g. for water, ports, airports, motorways).
  - Expect Task Force for Greece to provide technical assistance.
- Asset sale timetable:
  - Launch landmark asset sales in the first half of 2012: DEPA/DESFA, HELPE, OPAP, EYDAP, EYATH, and IBC.
  - Second half of 2012: proceed with tenders for the ports, airports and Egnatia Odos motorway.

### HRADF governance and constraints
- HRADF mandate: operate to privatize assets at prevailing market conditions as soon as technically feasible and in an open and transparent manner.
- Oversight and limits:
  - Assets overseen to accelerate transfer to private sector.
  - HRADF cannot transfer assets back to general government.
  - If an asset cannot be sold in its current form, the Board may sell in pieces or liquidate.
  - Fund can raise money on market terms but cannot grant liens over assets if such liens might prevent or delay privatization.
  - The Fund will return all proceeds received to the government without delay.

### Structural reforms — overall strategy
- Priority: restore competitiveness and economic growth by accelerating comprehensive structural reforms to boost employment, output, and productivity through liberalizing labor, product, and service markets and removing business environment barriers.
- Short-term measure: take upfront measures to allow a reduction in nominal wages to rapidly close competitiveness gap and support sustained growth.

### Labor market reforms and targets
- Target: reduce unit labor costs by about 15 percent during the program period.
- If social dialogue fails, government will take legislative measures in the urgent public interest to allow wage and non-wage costs to adjust.
- Structural measures to level collective bargaining:
  - Prior actions to enact law with key measures:
    - All collective contracts should have a maximum duration of 3 years.
    - Collective contracts already in place for 24 months or more will expire not later than one year after the law is adopted.
    - Grace period after a contract expires is reduced from six to three months.
    - If a new collective agreement cannot be reached after three months of efforts, remuneration will revert to the basic wage plus general allowances (seniority, child, education, hazardous) until replaced by a new agreement or contract.
  - Removal of ‘tenure’ in all existing legacy contracts in all companies: contracts with definite duration will automatically transform into indefinite duration contracts for which standard layoff procedures apply.
  - Freeze of ‘maturity’ provided by law and/or collective agreements (automatic time-dependent wage increases) until unemployment falls below 10 percent.
  - Elimination of unilateral recourse to arbitration; arbitration only with consent of both parties, with clarifications that arbitrators:
    - Are prohibited from introducing provisions on bonuses, allowances, or other benefits and may rule only on the basic wage.
    - Must take economic and financial considerations alongside legal considerations.
- Adjustment of wage floors:
  - Legislate an immediate realignment of the minimum wage level determined by the national general collective agreement by 22 percent at all levels based on seniority, marital status and daily/monthly wages.
  - Freeze the minimum wage until the end of the program period.
  - Implement a further 10 percent decline for youth, which will apply generally without restrictive conditions (under the age of 25) (prior action).
  - By end-July 2012, prepare, together with social partners, a clear timetable for an overhaul of the national general collective agreement.
- Adjustment to non-wage labor costs:
  - Enact legislation to reduce IKA social security contribution rates for employers by 5 percentage points, implemented in a budget neutral way once sufficient measures are in place to cover revenue losses.
  - Financing measures to be legislated in two steps:
    - Prior action: legislate to close small earmarked funds engaged in non-priority social expenditures (OEK, OEE), with a transition period not to exceed six months.
    - By end-September 2012: adjust pensions (with protections for low-income pensioners) and broaden the base for contribution collections (proposed as a structural benchmark).
  - By end-September: prepare jointly with social partners an actuarial study of first pillar occupational pension schemes in companies with excessive social security costs and finalize concrete proposals to eliminate differential in a fiscally neutral manner.
- Follow up:
  - Ongoing review of effects on the labor market and unit labor costs, with readiness to take additional corrective measures.
  - If by end-2012 effects remain elusive, consider more direct interventions.

### Product and service market reforms
- Rationale: rigidities in product and service markets are delaying inflation response and pass-through from wages to prices; reforms to be addressed alongside labor reforms.
- Service sector reforms:
  - Prior action: abolish restrictions in 20 high value and/or highly restricted professions from the list in Annex II of KEPE’s “Second Report on the Impact of Liberalizing Regulated Professions.”
  - Publish the ministerial decision establishing the road haulage license price in line with administrative costs.
  - By end-March: prepare a detailed quarterly timetable for 2012 for screening and cleaning existing legislation prioritized according to economic performance (completion by end-2012 is proposed as a structural benchmark).
  - For professions requiring reinstatement of restrictions, pass required legislation no later than end-June after consultation with the Hellenic Competition Commission and in line with EC/ECB/IMF advice.
- Product market reforms:
  - By April 2012: screen the retail, wholesale, and distribution sectors and prepare an action plan to promote competition and facilitate price flexibility in product markets.

### Business environment, investment facilitation, and implementation milestones
- Commitment to implement 2011-initiated reforms: fast-tracking investments, speeding licensing procedures, facilitating electronic business registration.
- By end-March:
  - Enact and publish legislation to: (i) improve functioning of the fast-track investment law (make framework available to more projects, lower fees, relax financing requirements); and (ii) eliminate registration requirement in the Export Registry and simplify export legislation.
  - Publish main secondary legislation required to implement licensing laws covering technical professions, manufacturing activities, business parks, and environmental licensing.
  - Establish timetables with key steps needed to complete by end-December implementation of an electronic export window, e-customs, and the new electronic environmental register, and to fully implement the two licensing laws.

### Judicial reform and case backlog reduction
- Focus areas: reduce case backlog, speed up case processing, improve court performance and accountability, and reform the Code of Civil Procedure.
- Tax cases backlog:
  - Commit to meet objectives and measures in January 2012 work plan for reduction of tax cases backlog with semi-annual milestones, prioritizing high-value tax cases exceeding €1 million.
- Non-tax cases backlog:
  - Commissioned a study to be completed by end-June; based on study, draw up an action plan by end-August with specific targets for clearance of all backlog cases.
- Speeding case processing:
  - Adopt by end-March a law to improve efficiency of administrative court proceedings (including streamlining procedures for group adjudication of similar administrative cases) and require submission of decisions in electronic form by administrative and civil judges.
- Performance and accountability:
  - Publish secondary legislation by end-May merging existing magistrate courts to reduce their number.
  - Ministry of Justice to start publishing detailed court information on its website at end-March on a quarterly basis, initially covering data for tax cases.
  - Design a performance framework for all courts by end-September, including development of a dependable data management system and a workload measurement system.
- Code of Civil Procedure reform:
  - Establish a task force by end-March to review the Code of Civil Procedure.
  - By end-June, task force to issue a concept paper identifying core issues and bottlenecks and proposed solutions.
  - By end-December, prepare a detailed paper outlining main proposals for amendments to the Code.

### Reform management, monitoring, and technical assistance
- By March: implement a directorate of planning, management, and monitoring of reforms.
- Starting end-March: publish quarterly monitoring indicators for each reform initiative on the government’s website.
- Support: Commission’s Technical Assistance Task Force to support ambitious reform agenda (judicial reform, screening legislation for closed professions, competition toolkit for product market rigidities).

### Program financing outlook
- Greece expected to face sizable balance of payments financing needs during the program period.
- Restoration of sovereign market access expected to take time given long reform and adjustment process and projected government debt trajectory.
- Anticipated financing composition: financial support from European partners, the IMF, and private sector involvement (PSI) in the form of a comprehensive debt restructuring operation.

*Prepared from the IMF content unit: _cr1257 - 23.      Under the program, we aim to accomplish a fundamental shift of public assets*

### 35.      We expect private sector involvement (PSI) to help Greece achieve debt

### _cr1257 - 35.      We expect private sector involvement (PSI) to help Greece achieve debt

### Private Sector Involvement (PSI) and Debt Sustainability
- Launched a comprehensive debt exchange offer covering a pool of government debt of €205.6 billion.
- Program assumption: the financial contribution of the private sector through the debt exchange, together with the official sector support, will deliver a debt to GDP ratio of 120 percent by 2020 (given anticipated macroeconomic and policy developments).
- Expectation: the debt exchange offer to be successfully completed prior to the meeting of the IMF Executive Board to consider Greece’s request for an Extended Arrangement under the EFF.

### Official Financing and Terms from European Partners
- IMF request: a 4 year EFF in an amount of SDR 23.7853 billion, or 2,158.8 percent of quota.
- Euro area partners committed a total of €144.7 billion over 2012–14.
- European partners’ commitments to ensure sustainable debt trajectory and deliver a debt-to-GDP ratio of about 120 percent by 2020 include:
  - New lending at maturities of 30 years and at close to funding costs, using the EFSF as a financing vehicle.
  - Reduce the margin of the Greek Loan Facility to a uniform 150 basis points.
  - For eurozone countries where central banks currently hold Greek government bonds in their investment portfolio, pass on to Greece an amount equal to any future income accruing to their national central bank stemming from this portfolio until 2020.

### Program Modalities and Monitoring
- Progress monitored through quarterly reviews and consultations, and via quarterly (and continuous) quantitative performance criteria (PCs) and indicative targets, and structural benchmarks.
- Quantitative targets up to end-December 2012 are PCs. Targets for 2013‒15 are indicative and for 2013 will be converted into PCs at the time of the second review.
- Expected timing: first and second reviews under the Extended Arrangement to take place by end-June and end-September 2012.
- A Memorandum of Understanding (MoU) with the European Commission specifies additional structural policies and precise time frames.
- Bank of Greece to undergo an updated safeguards assessment in accordance with the IMF safeguards policy.
- Fund disbursements will be deposited into the government’s single treasury account at the BoG; the existing Memorandum of Understanding between the Ministry of Finance and the BoG will be updated.

### Annex I — Pending Fiscal Measures (selected items)
- Government to enact a framework law to reform supplementary pensions, to generate savings of 0.4 percent of GDP by 2014 (in line with MTFS estimates).
- Issue MDs for the implementation of the business tax (Article 31 of Law 3986).
- Issue the 4 pending MDs to fully implement the new wage grid (see TMU).
- Pass law to establish deadline for implementation of the wage grid reform in the general government and the recovery of wage overpayments since November 1, 2011.
- Issue MD to bring down the transfer time from PPC of the property tax proceeds to 10 days after the end of each month.
- Issue the pending MDs on the closure/merger of extra-budgetary funds.
- Update the positive list mechanism to deliver the 2012 savings target of €250 million.

### Annex II — Measures to reach the 2012 deficit target (selected measures)
- Pass a supplementary budget with a primary deficit target of 1 percent of GDP for 2012 that reflects all of the changes.
- Reduce operational spending of the state by €200 million.
- Adjust other spending by €280 million (election spending, subsidies for remote areas; allocations for the ministry of education; allocation of the ministry of agriculture; and transfers to entities).
- Reduce pensions in OTE, DEI, ETE, ATE, ETVA, Emporiki, Ex-Olympic Airways and in all other main pension funds, above the monthly amount of €1,300, by 12 percent, effective January, 2012.
- Reduce supplementary pensions between €200–250 by 10 percent, between €250–300 by 15 percent, and above €300 by 20 percent, effective January 1, 2012.
- Eliminate all family allowances for families with annual incomes above €45,000, with the exception for families with 5 or more children, effective January 1, 2012.
- Cut domestic investment spending by €400 million relative to the 2012 budget.
- Implement a 1:10 hiring to attrition rule in the state-owned enterprises for 2012.
- In local governments: (i) reduce wages of all political employees by 10 percent (effective January 1, 2012); and (ii) issue a decision to reduce the number of fixed term contracts, and to limit the number of these paid from the state budget.
- Pharmaceutical measures (laws, MDs, circulars) to limit overprescribing and reduce generic costs, including maximum generic prices of 40 percent and off-patented products to 50 percent of patented products; reduce profit margins for pharmacies to below 15 percent and wholesale margins to a maximum of 5 percent; establish a fixed rate of €30 for all medicine above €200; increase rebate for pharmacies with turnover above €35,000 by average 1½ percent; pass law on rebates that will yield €250 million; pass law on an additional rebate covering 2012–15 if outpatient pharmaceutical spending (including taxes), retroactive to January 1, 2012 exceed €240 million per month; compulsory electronic prescription and related measures.

### Annex III — Upfront Revenue Administration Reforms (selected items)
- General Secretariat for Tax and Customs to meet end-2011 revenue administration performance indicators (full scope and VAT audits of large taxpayers).
- Amend the “Omnibus bill” to repeal/modify articles 3 and 21 (to eliminate the extension of payment terms of tax debt, and eliminate the suspension of criminal prosecution and asset freezing).
- Amend the Bank of Greece's decisions on reporting by financial institutions to the FIU (Decisions 285/2009 and 281/2009) to enhance monitoring and detection mechanisms.
- Make it compulsory for large tax cases to exhaust the administrative dispute phase before accessing judicial appeals.
- Tighten rules concerning suspension of payment of taxes in dispute when accessing judicial appeals (Article 202, Administrative Procedure Code).
- Minister of Finance to issue decisions to delegate from the ministerial to the administrative level the control powers over core business activities and human resource management.
- Place under direct control and management of GSTC headquarters the collection of large debts, and focus activities in the largest 35 tax offices.

### Selected Quantitative Targets and Performance Criteria (from Table 1)
Performance Criteria (selected entries; billions of Euros unless otherwise indicated)
- Floor on the modified general government primary cash balance: -2.5; -6.0; -6.3; -7.0; -0.2; 8.8; 8.1.
- Ceiling on State Budget primary spending: 13.9; 29.2; 44.4; 60.4; 52.6; 43.8; 43.0.
- Ceiling on the overall stock of central government debt: 340; 340; 340; 340; ..; ..; ..
- Ceiling on the new guarantees granted by the central government: 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0.
- Ceiling on the accumulation of new external payments arrears on external debt contracted or guaranteed by general government: 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0.
Indicative Targets (selected)
- Ceiling on the accumulation of new domestic arrears by the general government: 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0.
- Floor on privatization receipts: 0.03; 0.03; 1.20; 3.2; 7.5; 11.0; 16.0.

### Prior Actions and Structural Benchmarks (selected highlights)
- Prior Actions (fiscal, structural, financial) listed as Proposed, including full implementation of overdue MTFS measures; measures needed to reach the fiscal deficit target in 2012; measures to strengthen tax administration; legislating collective bargaining changes; realignment of minimum wage by 22 percent and a further 10 percent decline for youth; closure of small social security funds; bank-sector legislative changes to support recapitalization and resolution frameworks; governance reforms for HFSF and other oversight arrangements.
- Structural Benchmarks (timing examples):
  - End-March 2012: ministerial decree on banks' recapitalisation framework; BoG to complete strategic assessment of banks' business plans.
  - End-June 2012: adopt a budget-neutral tax reform package; complete reviews of social spending programs to identify 1 percent of GDP in savings; complete reviews of public administration to identify 1 percent of GDP in savings; meet quantified quarterly performance indicators for revenue administration and public financial management.
  - End-September 2012: complete strategy for strengthening social security collections; adjust pensions with protections for low income pensioners to permit fully-funded reduction in rates (cumulatively 5 percent from January 1, 2012).
  - End-December 2012: meet quantified quarterly performance indicators for revenue administration and public financial management; complete screening and cleaning of existing legislation covering the list of professions in KEPE’s “Second Report”; reform governance of the BoG.
  - End-June 2013: BoG to complete additional assessment of capital needs based on end-2012 data.

### Technical Memorandum of Understanding (TMU) — Key operational points
- TMU dated March 9, 2012 sets definitions of indicators subject to quantitative targets and methods for assessing program performance and information requirements.
- Program exchange rates (those that prevailed on January 31, 2012) specified as: €1 = 1.3176 U.S. dollar; €1 = 100.63 Japanese yen; €1.1772 = 1 SDR.
- Definition of general government includes: central government (entities covered under the State Budget as per Chapter 2 of Law 2362/1995 as modified by Law 3871/2010), other entities or extra-budgetary funds classified under central government (including ETERPS and the National Wealth Fund), specified state enterprises and organizations (ATTIKO METRO, ETHEL, HLPAP, ELGA, HELLENIC DEFENCE SYSTEMS S.A., OSE, TRAINOSE, ERT, ELECTROMECHANICA KYMI LTD, OPEKEPE, KEELPNO, EOT, INFORMATION SOCIETY IN GREECE, Unit for the Organization and Management of Development Projects S.A.), local government (municipalities, prefectures, regional governments), social security funds (including IKA, OGA, OAEE, OAED), and other extra budgetary entities included by ELSTAT under general government.
- Reporting requirements: MoF to provide monthly detailed information on revenues, expenditures, debt redemptions, new debt issuance, changes in cash balances, other sources of financing including capital transactions, and arrears of the general government; data to be provided within four weeks after the closing of each month.

*Source: IMF staff report (excerpts as provided).*

### 4.      Definition: The modified general government primary cash balance (MGGPCB) is

### _cr1257 - 4.      Definition: The modified general government primary cash balance (MGGPCB) is

### Definition of MGGPCB and MGGCB
- The modified general government primary cash balance (MGGPCB) is defined as the modified general government cash balance (MGGCB) minus interest payments by the state budget.
- The MGGCB is defined as the sum of:
  - the cash balance of the ordinary state budget;
  - the cash balance of the public investment budget;
  - the change in net financial assets of local government;
  - the change in net financial assets of social security;
  - the change in net financial assets of ETERPS;
  - the change in net financial assets of reclassified public enterprises (RPEs);
  - minus guarantees called to entities within the general government; and
  - minus the spending by the National Wealth Fund.
- Exclusions from cash receipts:
  - Privatization receipts, as defined in the source text, and the proceeds from the sale of land and buildings will be excluded from cash receipts.
- Net lending operations by the state budget will be recorded as cash expenditures.

### Cash balance of the ordinary state budget (measurement and inclusions/exclusions)
- Measured from above the line, based on:
  - (i) ordinary budget revenues (recurrent revenue plus non-recurrent revenue, including NATO revenues, but excluding tax refunds and all transfers related to the Eurogroup decision of February 21, 2012 (in regard to income of euro zone national central banks, including the BoG, stemming from their investment portfolio holdings of Greek government bonds));
  - minus (ii) ordinary budget expenditures.
- Ordinary budget expenditures will:
  - exclude amortization payments;
  - include salaries and pensions; grants to social security funds, medical care and social protection; operational and other expenditure; returned resources; payments in exchange of claims of insurance fund for the personnel working in the Public Electricity Company; the reserve, interest payments; transfers for the settlement of past debt, payments for military equipment procurement on a cash basis; NATO expenses; capital transfers to social security funds or other entities by bonds; called guarantees where the state or central government assumes payments on behalf of entities outside of the general government; and transfers made from the special budget allocation for clearance of arrears to any general government entity.
- Data source: monthly publications on the official website of the General Accounting Office of the Ministry of Finance, in line with corresponding line items established in the ordinary state budget.

### Cash balance of the public investment budget
- Measured from above the line, based on investment budget revenues minus investment budget expenditures of the investment state budget as published monthly on the official website of the General Accounting Office of the Ministry of Finance, and in line with the corresponding line items established in the investment state budget.

### Change in net financial assets — general approach
- Defined on a transactions basis as the change in the total of financial assets minus financial liabilities, adjusted for valuation changes by the Bank of Greece.
- Valuation adjustments by the Bank of Greece apply to local governments, social security funds, ETERPS, and RPEs.

### Change in net financial assets of local governments — components
- Financial assets include (but are not limited to) deposits of local governments in the Bank of Greece and deposits of local governments in domestic credit institutions.
  - Deposits measured at face value excluding accrued interest in line with recording for monetary survey data.
- Financial liabilities include (but are not limited to) short- and long-term loans from domestic credit institutions to local governments, measured at face value, consistent with monetary survey data.

### Change in net financial assets of social security funds — components
- Financial assets include:
  - Deposits of social security funds in the Bank of Greece and deposits of social security funds in the domestic credit institutions and deposits held either directly or indirectly through the IKA mutual fund (measured at face value excluding accrued interest).
  - Holdings of shares quoted on the Athens Stock Exchange held by social security funds either directly or indirectly through the IKA mutual fund.
  - Direct or indirect holdings of Mutual Fund units issued by Greek management companies (other than the IKA mutual fund).
  - Holdings of central government bonds, including short and long-term securities issued domestically, long-term securities issued abroad operated from Bank of Greece accounts, and indirect holdings through the IKA mutual fund (measured at nominal value).
  - Holdings of bonds issued abroad and other foreign assets.
- Financial liabilities include short and long term loans from domestic credit institutions to the social security funds, measured consistently with monetary survey data.

### Change in net financial assets of ETERPS — components
- Financial assets include:
  - Deposits of ETERPS in the Bank of Greece and deposits of ETERPS in domestic credit institutions (measured at face value excluding accrued interest).
  - Holdings of shares, held by ETERPS, quoted on the Athens Stock Exchange.
  - Holdings of Mutual Fund units issued by Greek management companies.
  - Holdings of central government bonds.
  - Holdings of other bonds issued abroad.
- Financial liabilities include short and long term loans from domestic credit institutions to ETERPS, measured consistently with monetary survey data, or other lending from the Bank of Greece.

### Change in net financial assets of reclassified public enterprises (RPEs) — components and list
- Defined on a transactions basis as the change in the total of financial assets minus financial liabilities of RPEs, adjusted for valuation, minus the amount of guarantees called from entities consolidated within the general government.
- RPEs include: ELGA, KEELPNO, OPEKEPE (excluding the account ELEGEP), EOT, ATTIKO METRO, HELLENIC DEFENCE SYSTEMS S.A., ERT, ETHEL, TRAINOSE, HLPAP, ELECTROMECHANICA KYMI LTD, INFORMATION SOCIETY IN GREECE, Unit for the Organization and Management of Development Projects S.A., and OSE.
- Financial assets include:
  - Deposits of RPEs in the Bank of Greece and deposits of RPEs in the credit institutions (domestic and foreign) measured at face value excluding accrued interest.
  - Holdings of shares quoted on the Athens Stock Exchange.
  - Holdings of Mutual Fund units issued by Greek management companies.
  - Holdings of central government bonds.
  - Holdings of other bonds issued abroad.
- Financial liabilities include short and long term loans from domestic credit institutions to RPEs, loans from the foreign banking system, and loans from the EIB or other official lenders as measured by the difference between new loans granted and amortization through called guarantees or amortization by actual payments by the companies themselves (monitoring and information provided by the General Accounting Office (D25)).

### Expenditures of the National Wealth Fund (NWF)
- Defined from below the line as the change in deposits of the NWF net of deposit changes due to borrowing for securitization purposes that are remitted to the central government as privatization receipts.
- Changes in net deposits and borrowing of the NWF measured from monetary survey data for borrowing and deposits held in commercial banks; for deposits held at the central bank, net deposits measured directly from the Bank of Greece.
- Remittance of privatization proceeds to the state measured from inflows into the Treasury Single Account.

### Other provisions (program exclusions and reporting)
- Primary expenditure of the central government monitored for the program excludes payments related to bank support when carried out under the program’s banking sector support and restructuring strategy. Transactions that may be excluded include:
  - loans to financial institutions and investments in equity of financial institutions (requited recapitalization);
  - unrequited recapitalization;
  - purchases of troubled assets; and
  - operations related to the FSF.
- Any financial operation by central government to support banks, including issuance of guarantees or provision of liquidity, will be immediately reported to IMF, European Commission, and ECB staff.
- Capital transfers to social security funds or other entities by bonds shall exclude bond issuance for settlement of end-2009 health related arrears, and the settlement related to the judiciary liabilities.

### Adjustor for the MGGPCB floor
- The floor on the modified general government primary cash balance will be adjusted upward by the difference between transfers to any general government entity made for the purpose of clearance of arrears from the special budget allocation and the arrears actually paid out of transfers from the special budget allocation.
- Timetable for the clearance of arrears from the special budget allocation included under the ceiling is reflected in Schedule A.

### Supporting material and reporting timetables
- Data on cash balances of the ordinary and state budgets:
  - 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 each month.
  - Data will include detailed information on revenue and expenditure items, in line with monthly reports published on the official website of the Ministry of Finance, and will include data on capital transfers to social security funds or other entities in bonds and called guarantees.
- Data on net financial assets of local authorities, social security funds, extra-budgetary funds including ETERPS, AKAGE, and reclassified public enterprises:
  - Provided to the IMF, European Commission and ECB by the GAO in cooperation with the Statistics Department of the Bank of Greece within four weeks after the end of each month.
- Data on the amount of arrears cleared from the special budget allocation:
  - Provided by the General Accounting Office in the Ministry of Finance within three weeks after the end of each month.

### Related fiscal ceilings, definitions, and adjustments (selected highlights)
- Ceiling of State Budget Primary Spending (Performance Criterion):
  - State budget primary spending = state budget spending (ordinary state budget + public investment budget) minus interest expenditures paid by the state budget, in line with definitions above.
  - Primary expenditure of the central government monitored for the Performance Criterion excludes cash payments related to bank restructuring when carried out under the program’s banking sector restructuring strategy.
- Non-Accumulation of Domestic Arrears by Line Ministries and Hospitals (Performance Criterion):
  - Domestic arrears defined as unpaid invoices past due by 90 days. If no due date, considered in arrears 90 days after initiation of the invoice.
  - Non-accumulation defined as no increase in the stock of all general government arrears outstanding at the end of every month, measured on cumulative basis; excludes arrears being accumulated by the Civil Servants’ Welfare Fund.
  - Reporting: data provided within four weeks after the end of each month.
- Non-Accumulation of Domestic Arrears by the General Government (Indicative Target):
  - Same 90 days arrears definition; continuous non-accumulation defined as no increase in stock of all general government arrears during the quarter monitored.
  - Explicit exclusion: €5.34 billion hospital arrears to pharmaceutical companies incurred by end-2009 to the extent still outstanding.
- Ceiling on the Overall Stock of Central Government Debt (Performance Criterion):
  - Refers to ESA95 central government debt defined as total outstanding gross debt liabilities; measured at nominal value; program exchange rate applies to non-euro debt; inflation indexation applies using relevant index.
  - Exclusion: debt arising from payments for bank restructuring under the program’s banking sector restructuring strategy (does not cover debt related to the Financial Stability Fund).
  - Adjuster for 2011: ceiling adjusted upward (downward) by the amount of any upward (downward) revision to the stock of end-December 2011 ESA95 central government debt of €378.2 billion.
  - The ceiling shall also exclude borrowing for collateral for a private sector involvement operation under the program to the extent such borrowing would be recognized in the gross debt definition.
- Ceiling on New Central Government Guarantees (Performance Criterion):
  - Includes new guarantees granted by the state and other entities classified under ESA95 as central government, but excludes guarantees to entities whose debt is covered under the ceiling on the stock of central government debt.
  - Excludes guarantees to support banks and guarantees related to EIB financed loans.
  - Excludes guarantees granted by ETEAN up to an amount of €50 million provided these are fully backed by an equivalent amount of bank deposits.
  - New guarantees include guarantees for which maturity is extended beyond initial contractual provisions above a total cumulative amount of €500 million per calendar year.
  - Modification of existing guarantees without changing maturity, amount, or beneficiaries will not be treated as new guarantees.
  - Excludes guarantees granted under a risk sharing instrument of the EU structural funds (see COM(2011) 655 final) that do not create contingent liabilities for the Greek State.

*Source: Excerpt from the provided IMF program document content.*

### 19.      Supporting material. All new central government guarantees will be reported in

### _cr1257 - 19.      Supporting material. All new central government guarantees will be reported in

### Central government guarantees — reporting requirements
- 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.

### Non-Accumulation of External Debt Payment Arrears by the General Government (Continuous Performance Criterion)
- Definition:
  - An external debt payment arrear is defined as 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.
  - “Falling due” means the date in which external debt payments are due according to the relevant contractual agreement, including any contractual grace periods.
  - The performance criterion applies on a continuous basis throughout the program period.
- Supporting material:
  - The stock of external arrears of the general government will be provided by the General Accounting Office with a lag of not more than seven days.

### Floor on Privatization Proceeds (Indicative Target)
- Definition of privatization proceeds:
  - Cash receipts from asset sales by the privatization agency (HRADF) and prior to its establishment directly by the government.
  - Includes sale of equity of listed or non-listed companies and banks; shareholdings in public infrastructure; shareholdings in SPVs; leasehold in commercial real estate and publicly held land; sale-lease back operations; securitization of asset-related cash streams; sale of rights and concessions (including securitization of the proceeds of concessions); and other assets incorporated in the authorities’ privatization program.
  - Proceeds will be valued in euro and reported on a gross basis, excluding any associated capital expenditure or other restructuring costs as well as the operating costs of the National Wealth Fund.
  - Proceeds will be measured as the inflows of cash received by the National Wealth Fund, and prior to its establishment directly by the government, as deposited in the Special Privatization Account at the Bank of Greece on the day the transaction is settled.
- Supporting material and reporting:
  - Quarterly information on cash receipts from asset sales, quarterly balances of the privatization account, inflows to the account (by project), and outflows to the state budget will be made available by the Minister of Finance, in collaboration with the National Wealth Fund, no later than two weeks after the end of each quarter.
  - The Ministry of Finance will provide a quarterly progress report on the Sovereign Wealth Fund activity, including a description of its operations, information on any borrowing (amounts, terms, and collateral), updates on the key steps in the operational plan, and latest estimates of the expected proceeds and timeline for completion of the transactions.
  - Quarterly reports on the National Wealth Fund’s activities, along with an audited report of its finances, will be published on the website of the Ministry of Finance.
- Other:
  - For QPC monitoring, receipts from privatization are excluded (in line with paragraph 5 of the TMU) from cash revenue receipts.
  - For 2012 and 2013, sales of gaming licenses, telecom licenses, sales of aircrafts, and extension of the airport concession established in the context of the May 2010 SBA program or the 2011 budget (Second Review) discussions will be recorded as cash revenue receipts and taken into account for the MGGPCB criterion, irrespective of whether the realized proceeds accrue to the privatization agency or not.
  - The privatization agency will provide GAO analytical data on the gross receipts and expenditures of the above mentioned sources, on a monthly basis – by the end of the 20th of every next month.

### ESA “Program” Deficit, ESA Primary Balance, and Overall Monitoring and Reporting Requirements
- ESA Program Deficit:
  - For the program, the ESA deficit (EDP B.9) will exclude the sale of non-financial assets such as land, buildings, and other concessions or licenses, unless these have been agreed in the context of the May 2010 SBA program (including subsequent reviews).
  - The ESA deficit will also exclude all transfers related to the Eurogroup decision of February 21, 2012 per schedule B (in regard to income of euro zone national central banks, including the BoG, stemming from their investment portfolio holdings of Greek government bonds).
- ESA Primary Balance:
  - Defined as general government ESA95 balance (EDP B.9) plus ESA 95 general government consolidated interest payable (EDP D.41).
- Overall monitoring and reporting:
  - 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.

### Monitoring of Structural Benchmarks — revenue administration and public financial management
- Benchmark on progress in revenue administration, 2012:
  - Progress is defined as reaching the targets set in table 1.
  - Definition: A completed audit is an audit formally finalized in the ELENXIS audit case management system, signed off by the audit supervisor, and the taxpayer has settled or appealed the assessment, or the audit report states that no underpayment has occurred.
  - Risk-based audits for large taxpayers are audits selected on a risk basis using the ELENXIS audit management system.
  - Supporting material: Monthly information on risk-based full-scope audits and temporary audits of large taxpayers, self employed and high wealth individuals, and VAT non-filers, and collection of assessed taxes and penalties, and collection of tax debt will be made available by the Minister of Finance, in collaboration with the steering committee on revenue administration, no later than two weeks after the end of each month. Data submission will include data back to 2010. Information will continue to be provided after December 2012.
- Benchmark on progress in public financial management, 2012:
  - Progress is defined as reaching the targets set in table 2.
  - Definition: Reporting institutional units (State and general government entities) include any unit under the general government as defined by Elstat as of end-February 2012, excluding additions of new entities under the control of sub-national governments. Any entity coming into the above definition after December 2011 could run commitment registers on a pilot base.
  - From end-June, entries under the e-portal will include an expanded set of fields, including cumulative appropriations released, commitments made, invoices received, and payments made.
  - Supporting material: Monthly summary information from the e-portal, surveys, and other sources on performance against the above indicators will be published by the General Accounting Office of the Ministry of Finance on their website no later than four weeks after the end of each month. Data submission will include data back to end-2011. Survey information will continue to be provided after December 2012 unless discrepancies between survey and e-portal data are eliminated.

### Letter of Intent — key financing requests and program objectives (Athens, 11 March 2012)
- Program objectives:
  - Address Greece’s competitiveness gap, support growth and employment, restore public finances to sustainability, secure financial system stability, and distribute the cost of adjustment in an equitable way.
  - Emphasis on deep structural reforms in labour, product and service markets; tax reform and revenue administration improvements; banking sector restructuring and recapitalization; and ambitious privatization plans.
- Financing requests:
  - Request financing arrangement by the European Financial Stability Facility (EFSF) until end-2014 in the overall amount of EUR 144.7 billion (including the already committed or disbursed amounts for PSI liability management exercise and bank recapitalisation).
  - Request financing by the IMF, under the Extended Fund Facility, in the amount of EUR 28 billion in a four-year arrangement, of which EUR 19.75 billion are expected to be disbursed by end-2014.
- Program monitoring:
  - Implementation will be monitored through quantitative performance criteria and structural benchmarks as described in the MEFP, MoU and TMU.
  - Quarterly reviews will assess progress and agree any additional measures needed.

### Fiscal consolidation — headline numerical targets and pre-disbursement measures
- Annual general government primary deficit/surplus targets:
  - For 2012, the annual general government primary deficit should not exceed EUR 2 037 million.
  - For 2013 the primary surplus should be at least EUR 3 652 million.
  - For 2014 the primary surplus should be at least EUR 9 352 million.
- Rules on proceeds and bank recapitalisation:
  - Proceeds from privatization of financial and non-financial assets do not substitute fiscal consolidation efforts and will not be considered when assessing compliance with the annual general government deficit ceilings established in this memorandum and in the Council Decision.
  - Bank recapitalisation-related flows will not be considered in the monitoring of annual general government deficit ceilings irrespective their recording in the ESA accounts by ELSTAT and Eurostat.
- Prior to first disbursement: measures to be adopted through a supplementary budget and other legal acts (selected measures and targeted savings):
  - Reduction in pharmaceutical expenditure by at least EUR 1 076 million in 2012 through multiple measures (see section 2.8 reference).
  - Reduction in overtime pay for doctors in hospitals by at least EUR 50 million.
  - Reduction in the procurement of military material by EUR 300 million (cash and deliveries).
  - Reduction by 10 percent in the remuneration of elected and related staff at local level and reduction in the number of deputy mayors and associated staff in 2013 with the aim of saving at least EUR 9 million in 2012 and 28 million in 2013 onwards.
  - Reduction in the central government's operational expenditure, and election-related spending, by at least EUR 370 million (compared to the 2012 budget), of which at least EUR 100 million in military-related operational expenditure, and at least EUR 70 million in electoral spending.
  - Reduction in operational expenditure by local government with the aim of saving at least EUR 50 million.
  - Frontloading cuts in subsidies to residents in remote areas, and cuts in grants to several entities supervised by the several ministries, with the aim of reducing expenditure in 2012 by at least EUR 190 million.
  - Reduction in the public investment budget (PIB) by EUR 400 million through cuts in subsidies to private investments and nationally-financed investment projects (no impact on projects co-financed by structural funds and specified project categories).
  - Changes in supplementary pension funds and pension funds with high average pensions or which receive high subsidies from the budget and cuts in other high pensions, with the aim of saving at least EUR 450 million (net after taking into account the impact on taxes and social contributions).
  - Cuts in family allowances for high-income households, with the aim of saving EUR 43 million.
- Additional pre-disbursement pending acts:
  - Ministerial Decisions for the implementation of the business tax (minimum levy on self-employed) provided for Article 31 of Law 3986/2011.
  - Ministerial Decisions to complete full implementation of the new wage grid in all pertinent entities, and legislation on modalities for recovery of wages paid in excess from November 2011 onwards.
- By end-June 2012:
  - Government will legislate an average reduction by 12 percent in the so-called 'special wages' of the public sector, to which the new wage grid does not apply; effective from 1 July 2012 and delivering savings of at least EUR 205 million (net after taking into account the impact on taxes and social contributions).
- Public spending review:
  - Initiated before end-February 2012 and to be completed by June 2012; will draw on external technical assistance and focus on pensions and social transfers, defence spending, and restructuring of central and local administrations.
  - By June 2012, further rationalization of pharmaceutical spending and operational spending of hospitals, and of welfare cash benefits will be specified.
  - Preliminary results will be included in the update of the medium-term fiscal strategy (MTFS), to be tabled in Parliament by May 2012.
- Expenditure supervision:
  - The Ministry of Finance ensures tight supervision of expenditure commitments by government departments, including extra-budgetary funds, public investment budget, social security funds and hospitals, local governments and state-owned enterprises, and effective tax collection to secure programme quantitative criteria.
- Contingency:
  - The Government stands ready to define and enact additional measures, if needed, to respect the budgetary targets.

*Source: _cr1257 - 19.      Supporting material. All new central government guarantees will be reported in (excerpt).*

### 2.1 Asset management and privatisation

### 2.1 Asset management and privatisation

### Privatisation objectives and timetable
- The Government implements the privatisation programme with the aim of collecting EUR 50 billion in the medium term.
- Cumulative privatisation receipts since June 2011 should be at least:
  - EUR 5 200 million by end-2012
  - EUR 9 200 million by end-2013
  - EUR 14 000 million by end-2014
- The Government stands ready to offer for sale its remaining stakes in state-owned enterprises, if necessary to reach the privatisation objectives; public control will be limited only to cases of critical network infrastructure.
- The Government will continuously transfer assets to the Hellenic Republic Asset Development Fund (HRADF); in particular, it will transfer to the HRADF all assets expected in 2012 and 2013 at the request of the HRADF.

### Governance, transparency and legal framework
- All legal, technical and financial advisors for privatisations planned for 2012 and 2013 will be appointed by end Q1-2012.
- Privatisation will be conducted in a transparent manner and will clearly set out post-privatisation property rights and obligations.
- Sale/concession conditions shall:
  - avoid creation of unregulated private monopolies
  - prevent any form of discrimination
  - facilitate open access
  - impose full transparency of accounts
- Intermediate steps specified include: clearing legal titles; securing state-aid approval; unbundling assets; respecting public procurement rules; compiling a comprehensive inventory of real estate assets; reallocating land uses; seeking the council of experts' and audit court's approvals.

### EU Treaty compliance and State special rights
- The Government will neither propose nor implement measures that may infringe the rules on the free movement of capital.
- Neither the State nor other public bodies will conclude shareholder agreements intended to hinder the free movement of capital or influence management or control of companies.
- The Government will not introduce voting or acquisition caps, disproportionate veto rights, or other special rights in privatised companies; no further special rights will be introduced in future privatisation projects.
- To ensure compliance with the EU Treaty, the Government repeals or appropriately amends the existing special rights granted to the State in the process of privatisation. In particular, the Law on Strategic Companies (Law 3631/2008, Art 11) is repealed or appropriately amended. [Q2-2012]

### State-aid clearance measures
- To ensure timely clearance of state-aid issues:
  - The Government appoints an interlocutor formally designated for ensuring compliance of privatisation with State aid rules by end-Q1 2012.
  - The Government, in cooperation with the HRADF, submits by end-Q2 2012 to the Commission information on the financial situation of each asset to be privatised in 2012, including whether privatisation needs restructuring and modalities; liabilities to the state which might hinder privatisation or the final price; legislation granting advantage (e.g., tax discrimination or monopoly status); conditions on interested buyers and buyers' eligibility; and the planned method of privatisation (public tender, negotiation with existing shareholders, IPO, etc.).
  - A similar report will be submitted in Q4-2012 for each asset expected to be launched for privatisation in 2013.

### Asset inventory and land registration
- The Government continues compiling and publishing a comprehensive inventory of state-owned assets, including stakes in listed and non-listed enterprises and commercially viable real estate and land.
  - The inventory will be published in successive stages by mid-2012 and end-2012 on the Ministry of Finance's website.
- The Government accelerates state land ownership registration and will:
  - prepare a comprehensive asset-inventory;
  - prepare a special law for the land development of the Hellinikon Area;
  - clarify land-use status for single assets and/or portfolios to be assessed and selected for exploitation within 2012. [Q2-2012]

---

### 2.2 Reducing waste in public enterprises and other public entities
- Tariffs in OASA, OSE Group and Trainose increase by at least 25 percent, while their business plans are appropriately updated. [Q1-2013]

---

### 2.3 Tax policy
- The Government will prepare a tax reform to simplify the tax system, eliminate exemptions and preferential regimes, broaden bases, and allow a gradual reduction in tax rates as revenue performance improves.
- Areas covered: personal income tax, corporate income tax, VAT, property taxes, and social contributions; the reform will maintain the relative tax burden from indirect taxes.
- The reform will be adopted by June 2012. In March 2012 the Government will announce the full schedule of intermediate steps until the reform is tabled, including public consultation and review by the European Commission, ECB and IMF staff.
- By June 2012, the Government will revise the legal values of real estate to better align them with market prices.

---

### 2.4 Revenue administration reforms — key measures and numeric targets
- Articles 3 and 21 of Law 4038/2012 are amended prior to the disbursement:
  - Suspension of criminal prosecution and asset freezing is eliminated.
  - Conditions to extend instalment plans for overdue taxes and social contributions are revised so instalment plans apply only to existing overdue amounts below EUR 10 000 for individuals and EUR 75 000 for corporations.
  - Taxpayers applying for an extended instalment plan should disclose all financial statements to tax authorities.
- During the programme years, the Government commits not to adopt new tax amnesties or extend existing amnesties for collection of taxes and social contributions.
- The Government will define 'tax refunds in arrears,' set standards for processing [Q1-2012], and publish on the web [Q2-2012] monthly data on these arrears with a lag of 20 days after the end of each month.
- As part of the anti-tax evasion action plan, the Government will step up audits of large-scale taxpayers, high-wealth individuals and self-employed; accelerate resolution of tax arrears; and better integrate anti-money laundering tools.
- Progress monitored by quantitative indicators (key performance indicators) covering:
  - completion of full-scope and temporary audits of large taxpayers;
  - risk-based audits of self-employed and high wealth individuals and non-filers;
  - collection of assessed taxes and penalties from new audits of large taxpayers and the existing stock of tax debt;
  - increase in number of registered VAT taxpayers filing returns.
- Prior to disbursement: achievement of completion of 75 full-scope audits and 225 VAT audits of large taxpayers (targets set in memorandum of 31 October 2011 for end-December 2011).

Operational and staffing reforms:
- Increase staff of the large-taxpayers unit by 40 auditors to step up audits in progress. [end-March 2012]
- Step up hiring procedure to complete first wave of auditor reassessment and hiring (1 000 staff) by [end-April 2012], with objective to achieve target of 2 000 tax auditors fully operational by end-2012 within overall limits for public hiring.
- Remove barriers to effective tax administration [June 2012], including formal performance review and replacing managers who do not meet performance targets.
- Continue to centralise and merge tax offices; 200 local tax offices, identified as inefficient, will be closed by end-2012.
- Centralise management of tax files related to taxpayers in the list of big debtors. [Q1-2012]
- Revise procedures to write-off tax debts so administrative efforts focus on collective debts, by end-2012.
- Discontinue payments in cash and cheque in tax offices, replaced by bank transfers, freeing staff time for audit, collection enforcement and taxpayer advice. [Q2-2012]
- Start to publish on the web key performance indicators for the tax department. [Q2-2012]
- Put in place a new IT system interconnecting all tax offices.

New IT system timeline:
- New data centre hardware is in place and running by end-March 2012.
- 20 more new electronic services and enhancements by end-June 2012 (mainly taxes withheld at source).
- Database and application design and implementation by end-October 2012.
- 8 remaining new electronic services and enhancements by end-December 2012 (forms filed late with a fine, real-estate tax, and VAT administration).
- System and user tests, user training, and migration of all tax offices to the centralized database by end-December 2012.
- Operational use of the new IT infrastructure by all tax offices: 1 January 2013.

Anti-corruption measures for tax administration:
- Reform the financial inspections' unit to focus only on auditing tax collectors and revenue administration issues. [June 2012]
- Activate an Internal Affairs Directorate. [June 2012]
- Require the Financial Intelligence Unit to audit annually at least 200 asset statements of tax officials. [June 2012]
- Establish procedures for rotation of managers on a periodic basis. [June 2012]
- Improve the system to protect whistle-blowers who report corruption. [June 2012]
- Prepare a fully-fledged anti-corruption plan. [September 2012]

Institutional and procedural changes:
- Define powers to be delegated from political level to the tax administration, including control over core business activities and management of human resources.
- Tighten control of local tax offices by central offices and fill the position of Secretary General of Revenue Administration with an external appointee with appropriate professional experience. [March 2012]
- Adopt secondary legislation to make arbitration operational and certify arbitrators by end-March 2012. By the same date, legislation will make it compulsory to exhaust administrative dispute phase for large tax cases before entering judicial appeals.
- Repeal the Code of Books and Records in its entirety and replace it with simpler legislation. [not later than June 2012]

---

### 2.5 Public financial management reforms
- A plan for the clearance of arrears owed to suppliers by public entities is published by June 2012; Government ensures stock of arrears steadily declines.
- Clearance of arrears of government entities by the state budget will be contingent on progress in relation to the commitment registry, and no additional accumulation of arrears by each public entity.
- Data on arrears are published monthly with a lag of not more than 20 days after the end of each month.

Expenditure control measures:
- Continue establishing commitment registries, which should fully cover the central government by March 2012, and the investment budget and at least 70 percent of general government units by June 2012, and extended to other general government entities.
- Enforce obligation of accounting officers to report commitments, including enacting sanctions for entities not submitting data and disciplinary action for accounting officers. [June 2012]
- Adopt legislation streamlining procedure for submission and approval of supplementary budgets. [October 2012]
- Establish an administrative calendar for the update of the medium-term fiscal strategy. [Q1-2012]

---

### 2.6 To modernise the public administration

Central level reforms and governance
- By December 2012, and in accordance with the roadmap:
  - Set up a high-level transformation steering group, chaired by the PM, to supervise and ensure implementation of administrative reforms. [February 2012]
  - Establish a stable structure for Inter-Ministerial Coordination. [May 2012]
  - Create basic horizontal structures in each Ministry implementing relevant procedures with Budget/Finance [February 2012], Audit, Internal Control, Human Resource Management, acting under common rules.
  - Draft and adopt framework legislation as legal reference for implementing the reform.

Decentralized/regional/local level
- Create a specific roadmap translating central-level principles to decentralized regional/local level. [March 2012]

Social programmes
- Finalise ongoing functional review on social programmes by end-March 2012; the review report will include recommendations on objectives, design and implementation of social policies and balancing savings with protection of the most vulnerable.

Public sector wages and human resource management
- Publish and update quarterly medium-term staffing plans per department up to 2015, in line with rule of 1 recruitment for 5 exits; applies to general government as a whole.
- Staffing plans should be consistent with target of reducing public employment by 150 thousand in end-2010–end-2015.
- If necessary, enact temporary hiring freezes.
- Staff transferred from state-owned enterprises or other entities under restructuring are considered new recruitments; same for staff in the labour reserve transferred after ASEP screening.
- Reduce overall intake in professional schools (e.g., military and police academies) to level consistent with hiring plans.
- Staffing plans include tighter rules for temporary staff, cancellation of vacant job posts, reallocation to priority areas, and take into account extension of working hours.
- Publish staffing plans and monthly data on staff movements (entries, exits, transfers) of government departments on the web monthly starting March 2012.
- Transfer 15 000 redundant staff to the labour reserve in the course of 2012, connected with closures or downsizing.
  - Staff in the labour reserve will be paid at 60 percent of their basic wage (excluding overtime and other extra payments) for not more than 12 months, after which they will be dismissed.
  - This 12-month period may be extended up to 24 months for staff close to retirement.
  - Payments to staff while in the labour reserve are considered part of their severance payments.
- Commission an expert assessment of the new wage grid. [Q1-2012]
  - Assessment will focus on wage drift embedded in new promotion mechanism; if assessment reveals excessive wage drift, promotion rules are adjusted before end-2012.
  - No promotion takes place before the assessment and adjustment.

IT and payments integration
- Set up an electronic automated system linking the census database with the Single Payment Authority (SPA) to allow more effective coverage, assessment and payment of employees; this system will be coordinated with other ministries. [Q2-2012]

Public procurement reforms

Single Public Procurement Authority (SPPA)
- Government issues decisions:
  - appoint members of the SPPA. [February 2012]
  - provide for institution and establishment of positions for the SPPA’s personnel and organization of human resources and services per SPPA law. [March 2012]
  - provide for the Implementing Regulation of the SPPA. [April 2012]
- SPPA starts operations to fulfil its mandate and powers as defined in law and Action Plan agreed with the European Commission in November 2010. [April 2012]

E-procurement
- Government presents a detailed plan for development of the e-procurement platform, including phased roll-out, communication and training programmes, target usage levels, and planned legislative revision (if needed). [Q1-2012]
- Government presents a pilot version of the e-procurement system. [Q2-2012]
- E-procurement platform is fully operational and ready for use and a common portal is created for publication of all procurement procedures and outcomes; SPPA supervises its operations. [Q1-2013]
- Whole public sector uses the e-procurement platform. [Q4-2013]
- Government presents results of monitoring activities covering year 2013 against target usage levels. [Q1-2014]

Efficiency of procedures and central purchasing
- Move towards more centralised procurement, especially in health procurement, services and supplies.
- Identify potential sectoral Central Purchasing Bodies (CPB) at central government level; first CPBs fully operational and coordinated by SPPA. [Q2-2012]
- Establish centralised purchasing/framework contracts for frequently purchased supplies or services at central government level with obligation for ministries and central government bodies to source via these contracts and optional use for regional entities. [Q3-2012]
- Propose an Action Plan to establish CPBs at regional/local level, at least one per administrative region. [Q3-2012]
- Regional/local CPBs are fully operational and coordinated by the SPPA.

Procurement system reform and redress review
- Undertake reform of public procurement system (works, supplies, services) to:
  - simplify, streamline and consolidate public procurement legislation;
  - rationalise administrative structures and processes to improve efficiency and efficacy.
- Develop first Action Plan for reform in agreement with the European Commission. [Q2-2012]
- Present drafts of necessary legislative and organisational measures to implement Action Plan to the European Commission. [Q4-2012]
- Undertake thorough review of redress system against award procedures to:
  - reduce significant delays from excessive use and lengthy processing of redress;
  - assess role to confer to SPPA in this area.
- Propose Action Plan in agreement with the European Commission. [Q2-2012]

---

*Italic: Source — _cr1257 - 2.1 Asset management and privatisation (PDF chapter/section)._

### introduction of Commitments of Confidence in Statistics, to be signed by all Member

### _cr1257 - introduction of Commitments of Confidence in Statistics, to be signed by all Member

### Commitments of Confidence in Statistics
- The Government will sign a Commitment of Confidence in Statistics, which will be endorsed by Parliament, prior to the disbursement.
- The Commitment includes:
  - the revision of the Statistical Law to reform the ELSTAT governance arrangements and establish the ELSTAT Board as an advisory body;
  - clarification of the professional authority of the ELSTAT President as chief officer and coordinator of the national statistical system.

### To complete the pension reform
- Prior to the disbursement, the Government proceeds, through a framework law, with an in-depth revision of the functioning of secondary/supplementary public pension funds.
- Objectives of the revision:
  - stabilise pension expenditure;
  - guarantee the budgetary neutrality of these schemes;
  - ensure medium- and long-term sustainability of the system.
- The revision achieves:
  - the elimination of imbalances in those funds with deficits;
  - the unification of all existing funds;
  - reduction of overall operational and payroll costs including an adequate reduction in staff headcount (by at least 30 percent) in the new single fund;
  - the long-term sustainability of secondary schemes through a strict link between contributions and benefits.
- Design and validation:
  - The reform of the secondary/supplementary schemes is designed in consultation with the European Commission, ECB and IMF staff, and its estimated impact on long-term sustainability is validated by the EU Economic Policy Committee.
  - The parameters of the new secondary notional defined-contribution system ensure long-term actuarial balance, as assessed by the National Actuarial Authority. [Q1-2012]

### Individual benefit design and benefit adjustments
- The individual pension benefit will be calculated on the basis of:
  - (i) a notional rate of return linked to the rate of growth of the wage bill of insured workers;
  - (ii) a sustainability factor that adjust benefits to promptly eliminate any future imbalances should they occur. [Q1-2012]
- The Government will reduce nominal supplementary pension benefits starting from January 2012 to eliminate deficits.
- The new single fund sets up in a cost effective way a computerised system of individual pension accounts. [Q1-2012]
- The Government identifies the schemes for which lump sums paid on retirement are out of line with contributions paid, and adjusts the payments. [Q1-2012]

### Disability pensions, Bank of Greece, and investment of social security assets
- The Health Committee set up by Law 3863/2010 will produce a first quarterly report of its activities aimed at revising the disability status and reduce the disability pensions to not more than 10 percent of the overall number of pensions. [Q1-2012]
- The Bank of Greece commits not to grant pension privileges to its staff and to revise the main parameters of its pension scheme, so that they remain aligned to those of IKA.
- The Government will ensure that social security's assets, including the liquidity that results from the ongoing debt exchange is invested in government bills, deposits in Treasury, or any other instrument that consolidates in government debt.

*Source: _cr1257 - introduction of Commitments of Confidence in Statistics, to be signed by all Member*

### 2.8     To modernise the health care system

### 2.8     To modernise the health care system

### Overview and objectives
- Objective: keep public health expenditure at or below 6 percent of GDP while maintaining universal access and improving quality of care delivery.
- Policy measures: reduce fragmented governance, reinforce and integrate the primary healthcare network, streamline the hospital network, strengthen central procurement, and develop monitoring/assessment capability and e-health capacity.
- Target: bring average public spending on outpatient pharmaceuticals to about 1 percent of GDP by end-2014.

### Governance reforms
- Concentrate all health-related decision making procedures and responsibilities (including payroll expenditures) under the Ministry of Health by at the latest June 2012.
  - Plan and necessary legislative changes prepared by end-February 2012.
- Merge all health insurance funds into EOPYY and place them under the Ministry of Health; EOPYY to buy services from NHS facilities and private providers through contracts.
- Move all other welfare/social assistance schemes under the Ministry of Health to the Ministry of Labour by at the latest June 2012.
- From January 2013, EOPYY will purchase hospital services on the basis of prospective budgets following development of costing of procedures by treatment/pathology categories (full absorption cost DRGs).
- EOPYY to rationalise the number of contracts with private doctors to bring doctor-to-patients ratio close to the much lower EU average. [Q2-2012]
- Contributions paid by OGA members to be progressively equalised to those of other members of EOPYY; equalisation completed in 2013.

### Controlling pharmaceutical spending
- Target: achieve EUR 1 billion reduction in outpatient pharmaceutical spending in 2012 compared to 2011 through simultaneous policies on pricing, prescribing and reimbursement.
- Aim: promote use of less expensive medicines, control prescription and consumption, and prosecute misbehaviour and fraud.
- Revise co-payment system to exempt from co-payment only a restricted number of medicines related to specific therapeutic treatments. [Q1-2012]
- Update complete price list quarterly using new pricing mechanism based on the three EU countries with the lowest prices. [Q1-2012]
- Introduce automatic claw-back mechanism (quarterly rebate) on turnover of pharmaceutical producers to guarantee outpatient pharmaceutical expenditure does not exceed budget limits. [Q1-2012]
- Pharmacies' profit margins readjusted starting Q1-2012:
  - Introduce a regressive margin with a flat fee of EUR 30 on medicines above EUR 200.
  - Aim to reduce the overall profit margin to below 15 percent.
  - Government to produce implementation report on impact by Q1-2013; if model fails, regressive margin will be further revised.
- Wholesalers' profit margins reduced from Q1-2012 to converge to 5 percent upper limit.

### Prescribing, monitoring, and e-prescribing
- Extend e-prescribing to all doctors, health centres and hospitals; e-prescribing made compulsory and must include at least 90 percent of all medical acts covered by public funds (medicines, referrals, diagnostics, surgery) in both NHS facilities and providers contracted by EOPYY and social security funds. [Q1-2012]
- Introduce temporary mechanism until all doctors use e-prescription: use IDIKA web-based e-prescription application to register manual prescriptions; pharmacies must register manual prescriptions for reimbursement; doctors prescribing manually charged a monthly administrative fee by EOPYY to compensate pharmacies. [February 2012]
- Publish and make compulsory prescription guidelines/protocols defined by EOF based on international guidelines; start with most expensive and/or mostly used medicines. [Q1-2012]
- Enforce prescription guidelines via e-prescription to discourage unjustified prescriptions of expensive medicines and diagnostic procedures. [Q1-2012]
- Produce detailed monthly auditing reports on e-prescription use in NHS facilities and by providers contracted by EOPYY and other social security funds (until they merge); share reports with the European Commission, ECB and IMF staff teams. [Q1-2012]
- Implement an effective monitoring system of prescription behaviour and regularly assess information from e-prescribing system. [Q2-2012]
- Produce regular reports at least quarterly on pharmaceutical prescription and expenditure including volume and value of medicines, use of generics, use of off-patent medicines, and rebates from pharmacies and pharmaceutical companies; share with European Commission, ECB and IMF staff teams. [Q1-2012]
- Provide feedback and warning to physicians when they prescribe above the average of comparable physicians or breach guidelines:
  - Feedback at least monthly.
  - Annual report published covering: 1) volume and value of doctor's prescription vs peers and guidelines; 2) prescription of generic vs branded/patent medicines; 3) prescription of antibiotics. [Q2-2012]
- Enforce sanctions and penalties for misconduct/conflict of interest and non-compliance with EOF guidelines:
  - Continuous or repeated non-compliance may lead to termination of contract with EOPYY and permanent loss of right to prescribe pharmaceuticals reimbursed by government/EOPYY. [Q1-2012]
- Continuously update positive list of reimbursed medicines using EOF reference price system. [Q1-2012]
- Select most expensive medicines sold in pharmacies to be sold in hospitals or EOPYY pharmacies to reduce outpatient distribution margins and control administration. [Q1-2012]
- If reductions in pharmaceutical spending fall short, additional measures include prescription budgets for each doctor, targets on average cost per patient, across-the-board further cuts in prices and profit margins, and increases of co-payments. [Q2-2012]
- Conduct tendering procedures to implement comprehensive and uniform e-health system in compliance with EU procurement rules. [Q1-2012]

### Increasing use of generic medicines
- Targets:
  - Reach 35 percent of overall volume of medicines sold by pharmacies as generics by end-2012.
  - Reach 60 percent by end-2013.
- Measures to achieve targets:
  - Reduce maximum price of generics to 40 percent of originator patented medicine price at patent expiry; set as maximum price; producers may offer lower prices. [Q1-2012]
  - Automatically reduce prices of originator medicines when patent expires to a maximum of 50 percent of price at time of patent expiry; producers may offer lower prices. [Q1-2012]
  - Create dynamic competition via price reductions of at least 10 percent of the maximum price of each generic follower. [Q4-2012]
  - Associate lower cost-sharing rate to generics priced lower than 40 percent of reference price while substantially increasing co-payment of more expensive medicines and new molecules. [Q1-2012]
  - Decide reimbursement of newly patented medicines based on objective criteria and, until internal capacity is in place, rely on best-practice health technology assessments from other member states while complying with Council Directive 89/105/EEC. [Q1-2012]
  - Exclude from reimbursed list medicines not effective or cost-effective based on other countries’ experience. [Q1-2012]
  - Make prescribing by international non-proprietary name compulsory for physicians. [Q1-2012]
  - Mandate compulsory generic substitution by pharmacies (lowest-priced product of same active substance in reference category). [Q1-2012]
- Public hospitals: ensure at least 40 percent of volume of medicines used by public hospitals are generics priced below similar branded products and off-patent medicines; achieve by procuring by active substance, using centralised tenders by EPY, and enforcing compliance with therapeutic protocols and prescription guidelines. [Q2-2012]
- Adopt a code of good conduct on interactions among pharmaceutical industry, doctors, patients, pharmacies and stakeholders; impose guidelines/restrictions on promotional activities and forbid direct sponsorship of specific physicians; sponsorship to be allocated transparently. [Q1-2012]
- Simplify administrative/legal procedures to speed entry of cheaper generics into positive list. [Q2-2012]

### Pricing and diagnostic services
- Review fees for diagnostic services contracted to private providers to reduce related costs by EUR 45 million in 2012. [Q1-2012]
- Start publishing quarterly report on prescription and expenditure of diagnostic tests. [Q1-2012]

### NHS (ESY) service provision and hospital efficiency
- Aim: reduce further hospital operating costs by 8 percent in 2012 through:
  - Increasing mobility of healthcare staff within and across health facilities and regions.
  - Adjusting public hospital provision within and between hospitals in same district and region.
  - Revising activity of small hospitals towards specialisation (rehabilitation, cancer, terminal care where relevant).
  - Revising emergency and on-call structures.
  - Optimising and balancing allocation of heavy medical equipment on basis of need.
- Publish first annual report comparing hospital performance on defined benchmarking indicators by end-March 2012.

### Wages and human resource management
- Update existing human resources report to present staff structure by specialty; update annually and use for human resource planning.
- 2012 report to present allocation and re-qualification plans up to 2013, guidance for education and training system, and plan to reallocate qualified and support staff within NHS focusing on training and retention of primary care professionals and hospital nurses. [Q3-2012]
- Revised EOPYY payment system and efficiency gains in staff use (including reduction in overtime) expected to lead to savings of at least EUR 100 million in overall social security costs associated with wages and fees of physicians in 2012. [Q4-2012]

### Accounting, control, and transparency
- Assign internal controllers to all hospitals and adopt commitment registers. [Q1-2012]
- Publish monthly report with analysis and detailed data on healthcare expenditure by all social security funds with a lag of three weeks after month-end; report to include accruals and cash basis, (1) performance on budget execution and arrears accumulation, (2) highlight defaulters, and (3) recommend remedial actions. Publish by end-March 2012. [Q1-2012]
- EOPYY and other social security funds to publish annual report on medicine prescription; annual and individual prescription reports to examine prescription behaviour focusing on most costly and most used medicines. [Q1-2012]

### Hospital computerisation, DRGs, and activity-based costing
- HDIKA to conduct tendering procedures to develop full integrated hospital IT systems. [Q1-2012]
- 2012 measures to improve accounting, book-keeping of medical supplies and billing systems:
  - Introduce analytical cost accounting systems and regular annual publication of balance sheets in all hospitals. [Q2-2012]
  - Calculate stocks and flows of medical supplies using uniform coding system developed by EPY and EKEVYL for procurement. [Q1-2012]
  - Timely invoicing of full treatment costs (including staff payroll) no later than 2 months to other EU countries and private insurers for treatment of non-nationals/non-residents. [Q2-2012]
  - Enforce collection of co-payments and implement mechanisms to fight corruption and eliminate informal payments in hospitals. [Q2-2012]
- ELSTAT to provide expenditure data in line with Eurostat, OECD and WHO (System of Health Accounts) joint questionnaire. [Q1-2012]
- Hospital computerisation programme to measure financial and activity data and define a core set of non-expenditure activity indicators in line with Eurostat, OECD and WHO, accounting for future roll-out of DRG schemes. [Q1-2012]
  - Continue development of patient electronic medical records. [Q3-2012]
- Pilot DRGs in all NHS hospitals to develop modern hospital costing system for contracting (prospective block contracts between EOPYY and NHS); DRGs to include detailed item on personnel costs. [Q3-2012]
- Conduct analysis of how hospital accounting schemes integrate DRGs at hospital level for future activity-based cost reporting and prospective budget payment for hospitals. [Q3-2012]

### Centralised procurement
- Continue centralised procurement through EPY and regional procurement through Regional Health Authorities to increase number of expenditure items covered by centralised tender procedures. [Q4-2012]
- EPY to utilise tender procedures for framework contracts for most expensive outpatient medicines to substantially reduce price paid by EOPYY. [Q4-2012]
- Put in place procurement monitoring mechanism. [Q1-2012]

### Independent task force
- Independent Task Force of Health Policy Experts (advisory group) to produce an annual report on implementation of reforms. [Q4-2012]

*Source: IMF country report section "2.8     To modernise the health care system" from the provided PDF content.*

### 4.1    To  ensure  a  rapid  adjustment  of  the  labour  market  and  strengthen  labour

### 4.1    To  ensure  a  rapid  adjustment  of  the  labour  market  and  strengthen  labour  market institutions

### Objective and strategy
- Aim: reduce nominal unit labour costs in the business economy by 15 percent in 2012-14.
- Simultaneous objectives: foster rapid adjustment of labour costs, fight unemployment, restore cost-competitiveness, ensure effectiveness of recent labour market reforms, align labour conditions in former state-owned enterprises with the private sector, and make working hours arrangements more flexible.
- Promote smooth wage bargaining at various levels and fight undeclared work.

### Exceptional legislative measures on wage setting (prior to the disbursement)
- The minimum wages established by the national general collective agreement (NGCA) will be reduced by 22 percent compared to the level of 1 January 2012.
- For youth (for ages below 25), the wages established by the national collective agreement will be reduced by 32 percent without restrictive conditions.
- Clauses in the law and in collective agreements which provide for automatic wage increases, including those based on seniority, are suspended.

### Reforms in the wage-setting system
- The Government will engage with social partners in a reform of the wage-setting system at national level.
- A timetable for an overhaul of the national general collective agreement will be prepared by end-July 2012.
- Proposal aim: replace the wage rates set in the NGCA with a statutory minimum wage rate legislated by the government in consultation with social partners.

### Measures to foster the re-negotiation of collective contracts (prior to the disbursement)
Amendments to Law 1876/1990:
- Collective agreements regarding wage and non-wage conditions can only be concluded for a maximum duration of 3 years. Agreements that have been already in place for 24 months or more shall have a residual duration of 1 year.
- Collective agreements which have expired will remain in force for a period of maximum 3 months. If a new agreement is not reached, after this period, remuneration will revert to the base wage and allowances for seniority, child, education, and hazardous professions will continue to apply, until replaced by those in a new collective agreement or in new or amended individual contracts.

### Raising the potential of recent labour market reforms
- Prior to the next disbursement, legislation is revised so that arbitration takes place when agreed by both employees and employers.
  - Government will clarify that arbitration only applies to the base wage and not on other remuneration, and that economic and financial considerations are taken into account alongside legal considerations.
- By October 2012, an independent assessment of the working of arbitration and mediation shall be prepared to improve arbitration and mediation services so arbitration awards adequately reflect the needs of wage adjustment.

### Legacy issues and special labour conditions
- Prior to the disbursement, clauses on tenure (contracts with definite duration defined as expiring upon age limit or retirement) contained in law or in labour contracts are abolished.
- The Government carries out an actuarial study of first-pillar pension schemes in companies where the contributions for such schemes exceed social contribution rates for private sector employees in comparable firms/industries covered in IKA.
  - Based on this study, the Government reduces social contributions for these companies in a fiscally-neutral manner [Q3-2012].

### Non-wage labour costs, fighting undeclared work and social contribution evasion
- The Government will enact legislation to reduce social contributions to IKA by 5 percentage points and implement measures to ensure that this is budget neutral.
  - Rates will be reduced only once sufficient measures are in place to cover revenue losses.
- Measures to finance rate reductions will be legislated in two steps:
  1. As a prior action, legislation will be enacted to close small earmarked funds engaged in non-priority social expenditures (OEK, OEE), with a transition period not to exceed 6 months.
  2. By end-September 2012, the government will adjust pensions (with protections for low-income pensioners), and adjust the base for contribution collections.
- An independent assessment on the effectiveness of the Labour Inspectorate structure and activities will be carried out.
  - Corrective actions to tackle the ineffectiveness found will be presented; may include changes in organisation and work of the Labour Inspectorate, reinforced anti-fraud and anti-corruption mechanisms, and reinforced monetary and legal penalties for infringement of law and labour regulations and for social contribution evasion.
  - Quantitative targets on the number of controls of undeclared work to be executed will be set for the Labour Inspectorate [Q2-2012].
- A fully articulated plan for the collection of social contribution will be developed by end-September 2012.
- By end-March 2012, the collection of taxes and social contributions of the largest tax debtors is unified, and there will be common audits of tax and social contributions for large payers.
- The Labour Card is progressively introduced as of March 2012 and every firm in specific sectors will be obliged to use it by end-2012.
  - For those firms using the labour card, the simultaneous payment by electronic means of wages, withheld payroll taxes and social contributions will be made compulsory. [Q2-2012]

*Source: IMF staff report content (section 4.1) contained in the provided PDF excerpt.*

### 20.9 of 3982/2011. [March 2012]

### _cr1257 - 20.9 of 3982/2011. [March 2012]

### Environmental licensing and implementation of Laws 3982/2011 and 4014/2011
- Issues the Joint Ministerial Decision on standardised environmental terms for industrial activities provided for in Art. 36.1 of Law 3982/2011. [March 2012]
- Issues the Presidential Decrees on preconditions for obtaining a licence for industry technicians, plumbers, liquid and gaseous fuel technicians, cooling technicians and machine operators in constructions provided for in Art. 4.4 of Law 3982/2011. [March 2012]
- Issues the Presidential Decrees on preconditions for obtaining a licence for electricians provided for in Art. 4.4 of Law 3982/2011. [May 2012]
- Issues the Presidential Decree on Certified Inspectors provided for in Art. 27.4 of law 3982/2011. [Q2-2012]
- Issues the Joint Ministerial Decision on the process of licencing business parks provided for in Art. 46.6 of law 3982/2011. [March 2012]

- Issues the Ministerial Decision provided for in Art. 2.7 of Law 4014/2011 on environmental licensing of projects and activities, laying down requirements for the content of the decision approving the environmental conditions according to the type of project or activity. [Q2-2012]
- Issues the Ministerial Decisions provided for i) in Art. 8.3 of Law 4014/2011 on environmental licensing of projects and activities (other than industrial activities), laying down the standard environmental commitments of projects and activities in category B; and ii) in Art. 2.13 of Law 4014/2011 to further specify the procedure and specific criteria for environmental licencing. [Q2-2012]

### Business-Friendly Greece — publication and implementation
- The Government publishes on its website a plan for a Business-Friendly Greece, tackling remaining restrictions to business activities, investment and innovation not covered elsewhere in this memorandum. [end-February 2012]
- The Government implements the Business-Friendly Greece Action plan. [Q1-2012]

Plan measures include:
- complete the setting-up of the General Commercial Registry (GEMI): completion of the GEMI database, further development of web services and use of electronic signatures, interconnection of GEMI to the Chamber's information systems and to the PSC to ensure access to online completion of procedures for company formation and for any administrative procedures necessary for the exercise of their activities. By July 2012, all companies established in Greece should be able to publish all relevant company data through GEMI.
- simplify environmental, building and operating permits.
- develop a "single electronic window" centralizing standardized trade-related information and simplifying the number of documents needed to export.
- address restrictions in the transport sector, including the transport of empty containers and of non-hazardous waste.

### Land registry and spatial planning
- Accelerate completion of the land registry with objectives:
  - tendering out all remaining rights (ca. 15 million) and awarding cadastral projects for 7 million rights. [Q4-2012]
  - digitalising the operations of all mortgage and notaries' offices and conveying all newly registered deeds to the cadastre by 2015.
  - exclusively-operating cadastral offices for large urban centres by 2015.
  - establishing a complete cadastral register and exclusively operating cadastral offices nationwide by 2020.
- Complete the revision of the 12 regional spatial plans to make them compatible with the sectoral plans on industry, tourism, aquaculture and renewable energy. [Q4-2012]
- Adopt legislation to (i) simplify and reduce time needed for town planning processes; (ii) update and codify legislation on forests, forest lands and parks. [Q3-2012]
- Adopt legislative measures for the management of industrial hazardous waste [Q2-2012] and license at least two disposal sites for hazardous waste by [Q4-2012].

### Other measures to improve the business environment
- Quasi fiscal charges: refine list of non-reciprocating charges presented in November 2011 by i) identifying beneficiaries, ii) specifying the legal base of each contribution and iii) quantifying contributions paid by consumers in favour of those beneficiaries, with a view to rationalize these contributions and/or channel those through the State budget. [Q2-2012]
- Market regulations: complete revision of Ministerial Decision A2-3391/2009 and related legislation. [March 2012] The revised Ministerial Decision on market regulations is adopted in April 2012.
- Screening of business restricting regulations: complete structured analysis of regulation in areas such as permits and licences, health and safety rules, urban planning and zoning to identify unnecessary restrictions in sectors including food processing, retail trade, building materials, manufacturing or tourism; simplify business regulations in areas such as new business registration and regulation of accounting. [Q3-2012] Within 6 months of the completion of the analysis, take necessary legislative or other actions to remove disproportionate regulatory burdens.
- Planning reform: review and amend general planning and land-use legislation to ensure more flexibility in land development for private investment and simplification and acceleration of land-use plans. [Q3-2012]
- Integrated and simplified process for export and customs formalities:
  - By end-March 2012, e-customs system supports the electronic submission of export declarations.
  - By end-December 2012: (i) e-customs supports electronic submission of import declarations; (ii) pre-customs procedures are streamlined according to EU regulations and best practices; (iii) legislation aligned with EU regulations and common rules for customs procedures at export and import, including the local clearance procedure; (iv) the level (number) of customs' controls (both physical and documentary) are aligned with best practices; (v) the electronic single-window of exports is launched after simplification of pre-customs procedures and is interlinked with e-customs to provide a single entry point for the exporters.
- Security stocks of crude oil and petroleum products: transpose Directive 2009/119 imposing an obligation on Member States to maintain minimum stocks of crude oil and /or petroleum products. [Q4-2012]
- Present an ex post impact assessment to evaluate Law 3853/2010 on the simplification of procedures for the establishment of companies in terms of savings in time and cost to set up a business, and verify that all secondary legislation is in force. [Q3-2012]

### Transport
- Road:
  - Submit a report on the functioning of the regular passenger transport services (KTEL), presenting options for liberalisation. [Q1-2012]
  - End the transitional period established in Law 3887/2010 for the reduction in costs for issuing new road transport operator licences in January 2012; publish necessary secondary legislation (Article 14(11)) specifying the transparent, objectively calculated cost for issuing new road transport operator licences, which does not exceed the relevant administrative cost.
  - Remove entry barriers to the taxis market (restrictions on the number of licences and price of new licences) in line with Law 3919/2011 on regulated professions. [Q1-2012]
- Ports:
  - Define a strategy to integrate ports into the overall logistics and transport system specifying objectives, scope, priorities and financial allocation of resources; ensure implementation of the TEN-T priorities and establishment of the foreseen corridors; ensure efficient use of the assigned Structural and Cohesion Funds. [Q2-2012]
- Aviation:
  - Submit a policy paper indicating how regional airports will be merged into groups ensuring economic viability in compliance with State aid rules, with realistic projections identified by the appointed financial advisors. [Q2-2012]
  - After ensuring regional airports are economically viable, launch an effective transaction strategy leading to their privatisation. [Q4-2012]
- Railways:
  - The rail regulatory authority establishes procedures for issuing licenses and decisions affecting non-discriminatory access of EU railway undertakings to Greek rail infrastructure; identify benchmarking data on cost effectiveness of the infrastructure manager; conduct procedures on its own initiative and respect legal time lines in EU railway Directives, including cases on international traffic; ensure all operators are awarded licenses and safety certificates. [Q2-2012]
  - Establish independent award authorities for passenger services by rail that can organise competitive tenders. Contracts concluded in 2014 or later will generally be awarded by means of competitive tender. Transfer rolling stock not used/needed by Trainose to a body which leases it on market conditions, including to winners of such tenders. Ensure documentation for calls for a first bundle of services is ready, establish general rules on ticket prices and take a decision on provision of rolling stock. [Q4-2012]

### Energy
- Unbundling of network activities:
  - Electricity:
    - complete all necessary transfers of staff and assets of the transmission system operator (TSO); appoint the TSO management, its supervisory body and the compliance officer in accordance with the Electricity Directive 2009/72/EC. [February 2012]
    - complete all necessary transfers of staff and assets to the legally unbundled distribution system operator (DSO). [Q1-2012]
    - the unbundled TSO is certified by the Greek energy regulator. [Q2-2012]
  - Gas:
    - implement unbundling as provided for in Art. 9 of Directive 2009/73/EC on common rules for the internal market in natural gas. [Q1-2012]
    - the unbundled TSO is certified by the Greek energy regulator. [Q3-2012]
  - Commit to launch privatisation of PPC and DEPA following the unbundling of the TSOs and monitor the process to ensure competition in the market.
  - Undertake that whichever the outcome of the privatisation process the gas industry structure will be fully compliant with Directive 2009/73/EC.
- Measures to increase competition on generation of electricity:
  - Finalise remedies to ensure access of third-parties to lignite-fired electricity generation. [Q1-2012]
  - Start implementing measures ensuring access by third parties to lignite-fired electricity generation. [Q3-2012]
  - Complete implementation so third parties can effectively use lignite-fired generation in the Greek market. [November 2013]
  - In the context of PPC privatization, take necessary steps to be able to sell hydro capacity and other generation assets to investors; sale is separate from divestiture of lignite capacity provided for in the Commission's decision on the Greek lignite case, but investors may be given the possibility to buy hydro capacity / other generation assets jointly with lignite capacity. Conditions: (i) sale of hydro capacity will not delay sale of lignite assets beyond the time frame provided for in the relevant Commission Decision and (ii) will not prevent sale of lignite assets without a minimum price.
- Regulated tariffs:
  - Adopt further measures so that the energy component of regulated tariffs for households and small enterprises reflects, at the latest by June 2013, wholesale market prices, except for vulnerable consumers. [Q2-2012]
  - Remove regulated tariffs for all but vulnerable consumers. [Q2-2013]
- Renewables:
  - Complete transposition and implementation of the renewable energy Directive (2009/28/EC) and submit the progress report required by the Directive. [Q1-2012]
  - Prepare a plan for reform of the renewable energy support schemes to make them more compatible with market developments and reduce pressures on public finances. The plan should contain:
    - a timetable scheduling meetings and stakeholder discussions on the reform of the support scheme.
    - options for reform of the support scheme, including a feed in premium model, specifying in each option the method of tariff calculation and the means of avoiding possible over compensation.
    - current and expected trends in costs for all relevant technologies.
    - consideration of the option of automatic tariff digression.
    - measures for the development of wind and solar energy resources. [Q1-2012]
  - Pursue implementation of the renewable energy project 'Helios,' through legislation [Q1-2012], facilitation of licencing process [Q2-2012] and cooperation with other EU countries for the export of solar energy.
- Other energy sector measures:
  - Ensure the regulatory framework fully complies with the Electricity and Gas Regulation, in particular concerning transparency, congestion management and non-discriminatory and efficient allocation of capacity on gas and electricity networks.
  - Resolve all open issues regarding the infringement case 2009/2168 for non-compliance with the Electricity Regulation; this resolution will include adoption by the Independent Regulatory Authority (RAE) of a modified electricity market code and establishing cross-border electricity trading procedures for the interconnectors with Bulgaria in line with the provisions of Regulation (EC) 714/2009 and its annexes. [Q1 2012]
  - Establish a One-Stop Shop for licensing and permitting of the following classes of infrastructure projects: LNG installations, natural gas storage and transmission pipeline projects and electricity transmission lines. [Q4-2012]
  - Establish an LNG code, approved by RAE, which ensures transparency and non-discriminatory access to the Revithoussa LNG plant and the efficient allocation of unused capacities. [Q3 2012]

### Electronic communications
- Adopt the Common Ministerial Decision on "Base stations and antennae constructions that are exempted from authorisation" provided for in Art.

*IMF staff report: _cr1257 - 20.9 of 3982/2011. [March 2012]*

### 31.8  of  Law  3431/2006  and  in  Art.  29.9  of  the  draft  law  on  the  Regulation  of  the

### _cr1257 - 31.8  of  Law  3431/2006  and  in  Art.  29.9  of  the  draft  law  on  the  Regulation  of  the

### Digital Dividend, electronic communications, and spectrum management
- Government adopts provisions instituting EETT as a One-Stop Shop for the licensing of antennae and base stations. [end-February 2012]
- Law transposing the 2009 Reform Package (Directive 2009/140/EC and Directive 2009/136) is adopted by Parliament. [Q1-2012]
- Legal and procedural timeline for the Digital Dividend (800 MHz band):
  - defines a legal framework in primary law envisaging a mandatory date for switch-off of analogue broadcasting for 30/06/2013 and a technologically neutral utilisation of the 800MHz band after the switch off, taking also into account the provisions of the draft Radio Spectrum Policy Programme (RSPP). [Q1-2012]
  - completes studies on the evaluation of the value of the Digital Dividend and on the strategy for the granting of the Digital Dividend (800 MHz band). [Q1-2012]
  - resolves cross-border coordination issues with neighbouring countries; if international coordination makes the date unfeasible, frequency and broadcasting plans might indicate alternative channels for re-location of broadcasters while continuing negotiations with third countries for final assignment of frequencies. [Q2-2012]
  - launches the consultation for the amendment of the frequency and broadcasting plans. [Q2-2012]
  - amends the frequency and broadcasting plans depending on international coordination outcomes. [Q3-2012]
  - adopts necessary secondary legislation for assignment of licenses for broadcasting and for the establishment of licensing procedures, antennae specifications, etc. [Q3-2012]
  - launches the public consultation on the tender procedure for the assignment of the digital dividend to broadband. [Q4-2012]
  - proceeds to the tender for the assignment of definitive rights of use for broadcasting transmission. [Q1-2013]
  - proceeds to the tender procedure for the assignment of frequencies of the digital dividend, allocating and authorising the use of the digital dividend (800 MHz band) to Electronic Communications Services in line with EC Decision 2010/267/EU and in respect of the deadlines and procedures of the RSPP. [Q2-2013]

### R&D and innovation
- Government to pursue an up-to-date and in-depth evaluation of all R&D and ongoing innovation actions, including various operational programmes and existing tax/subsidy incentives with their costs and benefits.
- Government presents a strategic action plan to enhance quality and synergies between public and private R&D and innovation, as well as tertiary education; plan identifies a clear timetable and takes budgetary impact into account and harmonises with other initiatives, in particular the investment law. [Q1-2012]

### Better regulation (regulatory governance reform)
- Legislation adopted to improve regulatory governance. [Q1-2012]
- Covered elements:
  - the principles of better regulation.
  - the obligations of the regulator for the fulfilment of those principles.
  - the tools of better regulation, including codification, recast, consolidation, repeal of obsolete legislation, simplification of legislation, screening of the entire body of existing regulation, ex-ante and ex-post impact assessments and public consultation processes.
  - the transposition and implementation of EU law and exclusion of gold plating.
  - setting-up better regulation structures in each ministry and creation of a Central Better Regulation unit.
  - requirement that draft laws and the most important draft legislative acts (Presidential Decrees and Ministerial Decisions) are accompanied by an implementation timetable.
  - electronic access to a directory of existing legislation and an annual progress report on Better Regulation.
  - requirement that the government produces an annual plan with measurable targets for administrative burden reduction, deregulation and other simplification policies.
- Impact assessment requirements:
  - implementing legislation with potentially large significant impact is subject to an impact assessment requirement.
  - impact assessments address competitiveness and other economic effects using the Commission Impact Assessment guidelines and the OECD Competition Assessment toolkit.
  - Central Better Regulation Unit can seek opinions of other ministerial departments and independent authorities to improve impact assessments.
  - an independent authority and the Central Better Regulation Unit carry out quality checks of impact assessments; the independent authority gives an opinion on progress made.
  - the Central Better Regulation Unit delivers its opinion on the quality of impact assessments before draft legislation is sent to the Cabinet.
  - the Central Better Regulation Unit consults the Hellenic Competition Commission when formulating and drafting guidelines for ministries' better regulation units.
  - impact assessments are published.
- Urgent legislation provision: under no circumstances will the law impede passing of urgent legislation during the programme.
- Government sets a deadline for completion of measurements, identification of burden-reduction proposals, and regulatory amendments; objective to reduce administrative burdens by 25 percent (compared with the baseline year 2008) in the 13 priority areas. [February 2012]

### Raising absorption rates of structural and cohesion funds
- Government meets targets for payment claims and major projects in absorption of EU structural and cohesion funds; compliance measured by certified data. Recourse to non-targeted state aid measures is gradually reduced.
- Government provides data on expenditure for targeted and non-targeted de minimis state aid measures co-financed by the structural funds in 2010 and in 2011. [Q1-2012]
- Table 1: Targets for payment claims in the absorption of Structural and Cohesion Funds (programming period 2007-2013) to be submitted through 2013 (EUR million)
  - 2012 / 2013
  - European Regional Development Fund (ERDF) and Cohesion Fund: 2,850 / 3,000
  - European Social Fund (ESF): 880 / 890
  - Target of first half of the year: 1,231 (*) / 1,284
  - Total annual target: 3,730 (**) / 3,890
  - (*) of which, 5 major project applications
  - (**) of which, 15major projects applications
- Legislation adopted and immediately implemented to shorten deadlines and simplify procedures on contract award and land expropriations, including deadlines for relevant legal proceedings. [Q1 2012]
- Government earmarks amounts to:
  - complete unfinished projects included in the 2000-06 operational programme closure documentation (ca. EUR 260 million). [Q2 2012]
  - complete the implementation and closure of the 2000-06 cohesion-fund projects. [Q2 2012]
  - cover the required national contribution, including non-eligible expenditure (i.e. land acquisitions) in the framework of the 2007-13 operational programmes. [Q2 2012]
- Government identifies necessary amounts from ERDF within the 2007-13 operational programmes for the first allocation to the guarantee mechanism for small and medium-sized enterprises. [Q1 2012]
- Web-based monitoring tool of procedures for approval of project proposals and implementation of public projects made available to the public by February-2012.
- Measures to speed up absorption and simplify project implementation: i) mapping responsibilities and removing unnecessary steps; ii) consolidating management capacities where appropriate (e.g. waste treatment) in accordance with existing management and control systems. [Q2-2012]
- To accelerate EU financing absorption and following increased EU co-financing rates, by Q1-2012 Government will:
  - establish appropriate monitoring tools for priority projects; these projects should be operational by 2015 at the latest.
  - report to the Commission final results of activation or elimination of sleeping projects; for retained projects, indicate conditions to keep co-financing.
  - create a central database monitoring compensation and time elapsed for completion of expropriations incurred in implementation of projects co-financed by the ERDF and the Cohesion Fund.

### Education system upgrade
- Government implements Action Plan for improvement of effectiveness and efficiency of the education system and reports twice a year on progress, including indicative planning of self-evaluations and external evaluations of Higher Education institutions in compliance with Law 4009/2011 on Higher Education. [Q2-2012]

### Judicial system reform (efficiency, enforcement, backlog reduction)
- Objectives: ensure effective and timely enforcement of contracts, competition rules and judicial decisions; increase efficiency via organisational changes to courts; speed up administration of justice by eliminating backlog and facilitating out-of-court settlement mechanisms.
- Key actions and timelines:
  - Submit draft law addressing fair trial and denial of justice, including amendment of Law 1756/1988 and dissuasive measures against non-cooperative debtors, with view to adoption during current parliamentary term. [Q1-2012]
  - Establish a broadly representative task force to review the Code of Civil Procedure and align with international best practice on judicial case management, relieving judges from non-adjudicatory work, enforcement of decisions and orders to pay, and enforcing statutory deadlines. [Q1-2012]
  - Compile and publish information indicated in Annex 2 to facilitate task force designing performance and accountability framework for courts.
  - Present a qualitative study on recovery rates in enforcement proceedings evaluating success rates and efficiency of enforcement modes. [Q2-2012]
  - Decide date to open access to regulated profession of mediator to non-lawyers and present action plan ensuring non-lawyers may offer mediation services starting from that date. [Q1-2012]
  - Following submission of work plan for reduction of backlog of tax cases (providing for at least 50 percent reduction by end-June 2012, at least 80 percent by end-December 2012, and full clearance by end-July 2013), present updated and refined work plans by end-May 2012 and thereafter once a quarter, ensuring priority on high value tax cases (i.e., exceeding €1 million). Take remedial action if deviations anticipated or actual.
  - Task force to prepare a concise concept paper identifying core issues/bottlenecks and proposed solutions. [Q2 2012]
  - Adopt a Presidential Decree providing for rationalisation and reorganisation of magistrates’ courts and allocation of human resources and infrastructure. [Q2 2012]
  - Prepare a strategy promoting pre-trial conciliation, mediation, and arbitration to ensure significant use by citizens and businesses. [Q2-2012]
  - Starting end-June 2012, update and refine every quarter the e-justice work plan of December 2011 for e-registration, e-tracking, and e-filing; updates contain deadlines for evaluation and completion of pilot projects and extension of e-registration and e-tracking to all courts by end-2013.
  - By end-August 2012, present, based on a study of the backlog of non-tax cases (to be presented by end-June 2012), an action plan with measures to reduce such backlog by at least 50 percent by end-July 2013 and start implementing the action plan.
  - Hold a series of workshops to discuss findings and recommendations of the task force's concept paper with domestic stakeholders and international experts. [Q3-2012]
  - Conduct assessment of whether Law 3898/2010 on mediation has delivered intended results, presenting data and analysis on costs, time and success rates of enforcement of ADR agreements vs enforcement of judicial decisions. [Q4-2012]
  - Task force prepares detailed paper outlining main proposals for amendments to the Code of Civil Procedure. [Q4-2012]
  - Implement the Presidential Decree on reform of magistrates’ court by creating new structure, filling vacancies with graduates from the National School of Judges and redeploying judges and administrative staff using existing resources. [Q4-2012]
  - Launch study with external experts on costs of civil litigation, causes of recent increase and effects on civil courts' workload, with recommendations due by end-December 2013. [Q2-2013]

### Monitoring, technical assistance, and debt-servicing safeguards
- Ministry of Finance's directorate of planning, management and monitoring becomes operational to improve reform management and oversight; by end-March 2012 it starts publishing quarterly monitoring indicators for each key structural reform initiative.
- Government will request technical assistance from EU Member States, the European Commission, the IMF or other organisations in priority areas; these actions coordinated by the Commission's Task Force for Greece.
- Government will fully cooperate with the Commission, the ECB and the IMF staff teams to strengthen monitoring of programme implementation and provide access to all relevant data.
- Debt-servicing monitoring mechanism:
  - Government will put in place a mechanism allowing better tracing and monitoring of official borrowing and internally-generated funds destined to service Greece's debt by paying an amount corresponding to the coming quarter's debt service directly to a segregated account of Greece's paying agent.
  - By end-April 2012, Government will introduce in the Greek legal framework a provision ensuring that priority is granted to debt servicing payments. This provision will be introduced in the Greek Constitution as soon as possible.

_Source: content unit _cr1257 (IMF staff document excerpt)_

### Annex 1: Provision of data

### Annex 1: Provision of data

### Data transmission and contact
- All programme-related data and reports shall be sent to ecfin-greece-data@ec.europa.eu.
- This address should also be used for the transmission of other data and reports related to the monitoring of the programme.

### To be provided by the Ministry of Finance (selected items and timing)
- Preliminary monthly data on the state budget execution (including breakdown by main categories of revenue and expenditure and by line ministry). (Data compiled by the Ministry of Finance)
  - 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 breakdown by main categories of revenue and expenditure and by line ministry. (Data compiled by the Ministry of Finance)
  - Monthly, 30 days after the end of each month.
- Monthly data on the public wage bill (of general government, including a breakdown in nominal wage and allowances paid to government employees per line ministry and public entity), number of employees (including a breakdown per ministry and public entities outside the central government) and average wage (including the relative shares of the base wage, allowances and bonuses). (Data compiled by the Ministries of Interior and Finance)
  - Monthly, 30 days after the end of each month (starting in June 2010).
- Preliminary monthly cash data on general government entities other than the state. (Data compiled by the Ministry of Finance)
  - 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 staff: number of employees, entries, exits, transfers among government entities; and from and into the labour reserve, per entity. (Data compiled by the Ministries of Interior and Finance)
  - Monthly, 30 days after the end of each month.
- Weekly information on the Government's cash position with indication of sources and uses as well of number of days covered. (Data compiled by the Ministry of Finance)
  - Weekly on Friday, reporting on the previous Thursday.
- Data on below-the-line financing for the general government. (Data compiled by the Ministry of Finance)
  - 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. (Data compiled by the Ministry of Finance on the basis of basic data from the several line ministries)
  - Quarterly, within 55 days after the end of each quarter.
- Data on use of international assistance loans split among categories: Financial stability fund, escrow account, debt redemption, interest payments, other fiscal needs, building of cash buffer; per quarter and cumulative
  - Quarterly, by the end of each quarter.
- Data on public debt and new guarantees issued by the general government to public enterprises and the private sector; data on maturing debt (planned redemptions per month, split between short-term (Treasury bills and other short-term debt) and long-term (bonds and other long-term) debt); data on planned monthly interest outflows. (Data compiled by the Ministry of Finance)
  - Monthly, within one month.
- Data on assets privatised and proceeds collected. (Data compiled by the Ministry of Finance)
  - Monthly.
- Data on state-owned enterprises: revenue, costs, payroll, number of employees and liabilities (including maturities of public enterprises' debts). (Data compiled by the Ministry of Finance)
  - Monthly, within three weeks of the end of each month for the ten largest enterprises.
  - Quarterly within three weeks of the end of each quarter for the other enterprises.
  - Quarterly for the maturities of state-owned enterprises' liabilities.
- Monthly statement of the transactions through off-budget accounts. (Data compiled by the Ministries of Finance and Education)
  - Monthly, at the end of each month.
- Monthly statement of the operations on the special accounts. (Data compiled by the Ministry of Finance)
  - Monthly, at the end of each month.
- Report on progress with fulfilment of policy conditionality. (Report prepared by the Ministry of Finance)
  - Quarterly before the respective review starts.
- Monthly data on health care expenditure by the social security funds with a lag of three weeks after the end of the respective quarter. (Data compiled by the Ministries of Labour and Health)
  - Monthly, within three weeks of the end of each month. Starting with data for January 2011 for EOPPY, and from April 2011 on for the other funds.

### To be provided by the Bank of Greece
- 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.
- Report on banking sector liquidity situation.
  - Weekly, next working day.
- Report on the evolution of financial stability indicators.
  - Quarterly, 30 days after the publication data of each quarter.
- Report on results from the regular quarterly solvency assessment exercise.
  - Quarterly, 15 days after the end of each quarter depending on data availability.
- Weighted average of Loan-to-value (LTV) ratio for new loans with real estate collateral
  - Yearly.

### To be provided by the Hellenic Financial Stability Fund
- 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: Statistics to be published by the Ministry of Justice or Ministry of Finance (deadlines and items)
- By end-March 2012, for each administrative tribunal, court of appeal and the supreme administrative court:
  - (i) the number of judges and administrative staff, with a breakdown for judges working in tax chambers or dealing primarily with tax cases;
  - (ii) the number of all cases;
  - (iii) the number of cases carried over from 2011;
  - (iv) the number of cases filed in the first quarter of 2012;
  - (v) the number of tax cases, with a breakdown according to case value (up to EUR 10 000, EUR 10 001 to EUR 50 000, EUR 50 001 to EUR 100 000, EUR 100 001 to EUR 500,000, and above EUR 500 000);
  - (v) the number of tax cases carried over from 2011;
  - (vi) the number of tax cases filed in the first quarter of 2012;
  - (vii) the recovery rate for all tax cases, defined as the ratio of the amount collected by the creditor in enforcement proceedings – following the issuance of an enforceable title – to the amount adjudicated by the court.
- By end-June 2012, in addition to the information in (a) above, updated as necessary, for each civil court, court of appeal and the supreme civil court:
  - (i) the number of judges and administrative staff;
  - (ii) the number of all cases;
  - (iii) the number of cases carried over from 2011;
  - (iv) the number of cases filed in the first two quarters of 2012;
  - (v) the number of dormant cases, i.e. cases pending before the civil courts in which the relevant court’s file records that they have been postponed or never received a hearing date and no party activity for receiving a hearing date has taken place for at least 18 months.
- By end-September 2012, in addition to the information in (a) and (b) above, updated as necessary, at the first instance and the appeal level:
  - (i) the number of corporate insolvency cases;
  - (ii) the average duration of corporate insolvency cases;
  - (iii) the average cost of corporate insolvency cases.
- By end-December 2012, quarterly updates of the information in (a) to (c) above.

### IMF assessment: Arrangement access, phasing, and key external debt facts

### Proposed EFF access and phasing
- Authorities request a 48–month Extended Arrangement with access of SDR 23.8 billion (2,159 percent of quota) and have notified the Fund of their intention to cancel the existing SBA.
- Access would be evenly phased over seventeen purchases of SDR 1.4 billion (or 127 percent of quota).
- The last purchase under the arrangement would be available in February 2016.
- Table entries (selected):
  - 2012 March (approval) 1,399.1 SDR mn; 127.0 Percent of quota; Cumulative 127.0
  - May 1,399.1; 127.0; Cumulative 254.0
  - August 1,399.1; 127.0; Cumulative 380.9
  - November 1,399.1; 127.0; Cumulative 507.9
  - 2013 February 1,399.1; 127.0; Cumulative 634.9
  - 2013 May 1,399.1; 127.0; Cumulative 761.9
  - 2013 August 1,399.1; 127.0; Cumulative 888.9
  - 2013 November 1,399.1; 127.0; Cumulative 1,015.9
  - 2014 February 1,399.1; 127.0; Cumulative 1,142.8
  - 2014 May 1,399.1; 127.0; Cumulative 1,269.8
  - 2014 August 1,399.1; 127.0; Cumulative 1,396.8
  - 2014 November 1,399.1; 127.0; Cumulative 1,523.8
  - 2015 February 1,399.1; 127.0; Cumulative 1,650.8
  - 2015 May 1,399.1; 127.0; Cumulative 1,777.8
  - 2015 August 1,399.1; 127.0; Cumulative 1,904.7
  - 2015 November 1,399.1; 127.0; Cumulative 2,031.7
  - 2016 February 1,399.7; 127.0; Cumulative 2,158.8
  - Total 23,785.3 SDR mn; Cumulative 2,158.8 Percent of quota.
- Note: Starting May 2012, purchases will be conditioned on the completion of a review.

### Background and key external debt statistics
- Greece purchased about two-thirds of credit committed under the current SBA. The three-year SBA approved in May 2010 had access equivalent to SDR 26.43 billion (3,212 percent of pre-second round quota or 2,399 of current quota). Greece purchased SDR 17.5 billion under this SBA.
- At end-2011, Greece’s total external debt is estimated to have stood at 192 percent of GDP, of which almost 73 percent was public sector debt (Table 2).
- At end-2011, Greece’s total stock of short-term external debt stood at approximately 86 percent of GDP, of which more than half is associated with ELA and ECB refinancing operations.
- By end-2012, sixty percent of Greece’s public external debt is projected to be to the EU and IMF.
- Table 2 excerpts (levels and percent of GDP):
  - Total External Debt (2007–2012) in Billions of Euros: 2007 309; 2008 363; 2009 413; 2010 407; 2011 414; 2012 394.
  - Public (billions): 2007 188; 2008 227; 2009 274; 2010 269; 2011 300; 2012 301.
  - Short-term (billions): 2007 124; 2008 157; 2009 88; 2010 101; 2011 79; 2012 179.
  - Total External Debt (percent of GDP): 2007 138.5; 2008 155.7; 2009 178.4; 2010 179.1; 2011 192.2; 2012 193.5.
  - Public (percent of GDP): 2007 84.3; 2008 97.6; 2009 118.3; 2010 118.3; 2011 139.6; 2012 147.9.
  - Short-term (percent of GDP): 2007 5.4; 2008 17.5; 2009 24.7; 2010 38.8; 2011 46.7; 2012 38.6.
  - Memorandum: Short-term external debt (billions of euros) 2007 68.2; 2008 140.3; 2009 171.1; 2010 182.9; 2011 185.1; 2012 151.3.
  - Short-term external debt (% of GDP) 2007 30.6; 2008 60.3; 2009 73.8; 2010 80.4; 2011 86.0; 2012 74.3.
  - Excluding ECB repos (% of GDP) 2007 25.8; 2008 45.1; 2009 52.7; 2010 42.1; 2011 39.4; 2012 35.8.
- Greece’s external debt service burden, particularly on short-term maturities, has increased and remains heavy; external debt service peaks at over four times exports of goods and services if amortization of short-term obligations is included.
- Despite PSI and OSI, Greek public debt will remain very large. Under the programme baseline, public debt would fall to below 120 percent of GDP by 2020 despite a spike in 2013.
- Debt relief stemming from low official sector interest rates and channeling part of profits from ECB holdings of Greek GGBs reduces debt by around 4½ percent of GDP by 2020.
- Nominal GDP is projected to fall in the near term; the stock of total public debt in terms of GDP falls only slightly in 2012 to about 160 percent from over 165 percent in 2011.
- Public external debt rose from 71 percent of GDP in 2004 to 140 percent of GDP in 2011.
- In 2011, about 85 percent of public debt was owed to external creditors, up from about 70 percent in 2004.
- A large part of the public debt (estimated at €100 billion in Q3 2011 at face value) is currently held by foreign banks, mostly European, although its share will diminish after the PSI operation.

*Source: Annex 1: Provision of data; Annex 2; and IMF note “Greece—Assessment of the Risks to the Fund and the Fund’s Liquidity Position,” Approved March 9, 2012.*

### 7.      Notwithstanding considerable efforts, Greece’s structural challenges remain

### 7.      Notwithstanding considerable efforts, Greece’s structural challenges remain formidable posing severe risks to the program

### Structural challenges and macroeconomic outlook
- Greece remains at a significant distance from attaining objectives of restoring competitiveness and growth, fiscal sustainability and financial stability.
- Upcoming elections, likely to lead to a change in government, could complicate efforts to address these challenges.
- Greek tax revenues are low compared with euro area partners, even after almost two years of reforms, reflecting limited institutional capacity, while expenditure is around the EU average.
- Continued fiscal adjustment will likely continue to weigh on economic activity.
- Greece faces a major challenge of engineering a substantial internal devaluation; there are few examples of successful large internal devaluations under hard currency pegs even under favorable conditions.
- The length of the adjustment and its possible negative growth implications increase risks to the Fund.

### Debt structure, PSI impact, and banking claims (high-level indicators)
- Figure evidence in the chapter highlights:
  - Total public sector debt excludes external liabilities of the Bank of Greece (estimated at about 47 percent of GDP at end-2011), which are included in total external public sector debt.
  - Impact of PSI on Greece’s public debt (Figure 2) and consolidated BIS-reporting banks’ claims on Greece show a decline in reported foreign bank claims from Total: €148.5 (4Q2009) to Total: €99.2 (3Q2011), a change of -€49.3 or -33.2 percent.
  - Real exchange rate dynamics are presented (Figure 4).

### Proposed Extended Arrangement: scale of Fund exposure and timeline
- If all purchases were to be made as scheduled:
  - Greece’s outstanding use of GRA resources would rise to 1,719 percent of quota upon approval (Mar-12), to about 2,227 percent of quota during the first year, and peak at 2,570 percent of quota in May 2014. This projected peak exposure in quota terms would be the highest in Fund history.
  - In SDRs, projected peak GRA exposure of SDR 27.3 billion would be the highest among recent exceptional access cases.
  - GRA credit to Greece projections (in SDR millions and percent of quota):
    - Mar-12: 18,940.9 SDR (1,719.1 percent of quota)
    - 2012: 23,138.2 SDR (2,100.0 percent of quota)
    - 2013: 27,262.8 SDR (2,474.4 percent of quota)
    - 2014: 26,581.4 SDR (2,412.5 percent of quota)
    - 2015: 24,878.7 SDR (2,258.0 percent of quota)
    - 2016: 23,552.1 SDR (2,137.6 percent of quota)
    - 2017: 22,386.2 SDR (2,031.8 percent of quota)
    - 2018: 20,287.6 SDR (1,841.3 percent of quota)
    - 2019: 17,256.2 SDR (1,566.2 percent of quota)
    - 2020: 13,408.6 SDR (1,217.0 percent of quota)

### Capacity-to-repay and debt service metrics (Table 3 excerpts)
- Debt and debt service ratios (in percent of GDP):
  - Total external debt: Mar-12: 192.2; 2012: 193.5; 2013: 199.7; 2014: 200.5; 2015: 193.0; 2016: 184.3; 2017: 174.2; 2018: 163.4; 2019: 152.8; 2020: 141.1
  - External debt, public: Mar-12: 139.6; 2012: 147.9; 2013: 146.9; 2014: 139.4; 2015: 129.7; 2016: 120.8; 2017: 110.9; 2018: 104.4; 2019: 98.3; 2020: 91.7
  - Total public debt: Mar-12: 165.3; 2012: 159.7; 2013: 164.0; 2014: 160.7; 2015: 153.0; 2016: 145.2; 2017: 137.4; 2018: 130.3; 2019: 123.3; 2020: 116.5
  - GRA credit to Greece (in percent of GDP): Mar-12: 10.0; 2012: 13.4; 2013: 15.8; 2014: 15.0; 2015: 13.5; 2016: 12.3; 2017: 11.2; 2018: 9.8; 2019: 7.9; 2020: 5.9
- Debt service indicators:
  - Debt service due on GRA credit (SDR millions): 2012: 446.2; 2013: 2,318.3; 2014: 7,338.5; 2015: 8,292.1; 2016: 3,657.5; 2017: 2,032.8; 2018: 2,905.1; 2019: 3,739.3; 2020: 4,418.6
  - Total external debt service (in percent of GDP): 2012: 24.2; 2013: 15.1; 2014: 19.5; 2015: 14.9; 2016: 10.2; 2017: 10.6; 2018: 9.0; 2019: 10.7; 2020: 10.7
  - Public external debt service (in percent of GDP): 2012: 19.1; 2013: 11.3; 2014: 17.4; 2015: 12.9; 2016: 9.1; 2017: 9.1; 2018: 7.8; 2019: 9.3; 2020: 9.4
- Ratios in percent of General Government Revenues:
  - Public external debt service: 2012: 45.2; 2013: 26.7; 2014: 41.4; 2015: 32.2; 2016: 22.7; 2017: 22.8; 2018: 19.4; 2019: 23.2; 2020: 23.4
  - Debt service due on GRA credit: 2013: 0.6; 2014: 3.2; 2015: 9.9; 2016: 11.3; 2017: 4.8; 2018: 2.5; 2019: 3.5; 2020: 4.3
- Ratios in percent of Exports of Goods and Services:
  - Total external debt service: 2012: 97.3; 2013: 58.2; 2014: 72.6; 2015: 53.8; 2016: 35.7; 2017: 35.7; 2018: 29.6; 2019: 34.1; 2020: 33.6
  - Public external debt service: 2012: 76.8; 2013: 43.5; 2014: 64.9; 2015: 46.5; 2016: 31.7; 2017: 30.9; 2018: 25.5; 2019: 29.7; 2020: 29.5
  - Debt service due on GRA credit: 2013: 1.0; 2014: 5.2; 2015: 15.5; 2016: 16.3; 2017: 6.7; 2018: 3.4; 2019: 4.6; 2020: 5.5; 2020: 6.1 (note: table includes series through 2020)

- In percent of Total Public External Debt:
  - GRA credit to Greece: Mar-12: 7.2; 2012: 9.0; 2013: 10.8; 2014: 10.8; 2015: 10.4; 2016: 10.2; 2017: 10.1; 2018: 9.3; 2019: 8.1; 2020: 6.5
- REER (2005 = 100): Mar-12: 106.1; 2012: 103.2; 2013: 100.5; 2014: 98.2; 2015: 96.6; 2016: 95.4; 2017: 94.5; 2018: 93.8; 2019: 93.3; 2020: 92.7

### Debt service to the Fund and related risks
- Greece’s projected debt service to the Fund would peak at almost SDR 8.3 billion in 2015 (Table 3).
  - This peak would be:
    - about 4.5 percent of GDP,
    - about 11.3 percent of general government revenues,
    - about 16.3 percent of exports of goods and services.
  - These would be the highest in recent exceptional access cases.
- Allowing for an SDR interest rate path rising to over 3 percent by 2017 would raise debt service by over 6 percent on average (see Table A1 in the Annex referenced in the source).
- These ratios underscore the very substantial financial risks to the Fund.

### Impact on Fund liquidity, credit concentration, and precautionary balances
- Commitments under the proposed arrangement would reduce the forward commitment capacity (FCC), which currently stands at about SDR 255 billion, by about 9 percent once undrawn balances under the current SBA are taken into account.
- If the first purchase is made, Fund credit to Greece would represent about 21 percent of total GRA Fund credit, making Greece the largest user of Fund resources.
- The share of the top five users of Fund resources to total outstanding credit would increase by a couple of percentage points to about 72 percent.
- Under the current SBA, Fund exposure to Greece was projected to fall to below 1,000 percent of quota in 2015 about five years after approval; under the proposed EFF, GRA credit would remain above 1,000 percent of quota until 2019.
- Existing Fund credit to Greece and the proposed commitments is equivalent to about 450 percent of the Fund’s current precautionary balances.
  - After the first purchase under the proposed arrangement, credit to Greece would be about twice the size of precautionary balances, rising to about 300 percent in 2013 when credit outstanding is projected to peak.
- Charges accruing to Greece’s GRA obligations would far exceed the Fund’s burden sharing capacity were they to fall into arrears:
  - Charges on GRA obligations would equal about SDR 446 million in 2012, over 20 times the current estimated residual burden-sharing capacity, and increase to over SDR 1 billion in 2014.
  - The burden-sharing mechanism’s current capacity is very limited while the SDR interest rate is low and the Fund relies on borrowed resources; if charges fall into arrears, the Fund’s income position and prudential balances would deteriorate.

### Portfolio concentration and euro area exposure
- Credit to the euro area currently represents about 40 percent of total credit, but given the size of commitments to euro area members in early stages of disbursing, GRA credit to the euro area is projected to approach 80 percent of the total in 2014 based on current arrangements.

*Italic: IMF Staff Report excerpt — chapter titled "7. Notwithstanding considerable efforts, Greece’s structural challenges remain" (content as provided).*

### 12.      This large exposure to a single region that is subject to highly correlated shocks

### _cr1257 - 12.      This large exposure to a single region that is subject to highly correlated shocks

### Risks from concentrated exposure to the Euro area
- "This large exposure to a single region that is subject to highly correlated shocks poses important risks."
- Large and concentrated lending to the Euro area, likely to be subject to correlated shocks, raises unprecedented financial risks.
- These risks rise with:
  - the share of Fund lending in total official sector lending,
  - the share of the latter in total financing needs,
  - greater reliance on GRA borrowing over quota and other structures.
- Risks would be heightened in the event of an exit from the euro zone.

### Liquidity measures and prudential metrics (as of 3/8/2012)
- Liquidity measures
  - Forward Commitment Capacity (FCC) 1/264,250
  - Impact on FCC on approval 2/-23,785
- Prudential measures
  - Fund GRA commitment to Greece including credit oustanding
    - in percent of current precautionary balances  454
    - in percent of total GRA credit outstanding 3/37
  - Fund GRA credit outstanding to top five borrowers
    - in percent of total GRA credit outstanding 3/70
    - in percent of total GRA credit outstanding including first Greek purchase 72
  - Greece's annual GRA charges in percent of the Fund's residual burden sharing capacity for 20122,053
- Memorandum items
  - Fund's precautionary balances (end-January 2012) 4/9,100
  - Fund's Residual Burden Sharing Capacity 5/21.7

- Sources: Greek authorities, Finance Department, World Economic Outlook, and IMF staff estimates.

- Notes extracted from source:
  - "1/ The FCC is defined as the Fund's stock of usable resources less undrawn balances under existing arragements, plus projected repurchases during the coming 12 months, less repayments of borrowing due one year forward, less a prudential balance. The current FCC of SDR 255b is adjusted upwards by the undisbursed amount under the SBA."
  - "2/ A single country's negative impact on the FCC is defined as the country's sum of Fund credit and undrawn commitments minus repurchases one-year forward."
  - "3/ March 8, 2012, does not include proposed first purchase."
  - "4/ Estimated. Precautionary balances exclude amounts in Special Reserves attributable to pofits on gold sales in FY2010."
  - "5/ Burden-sharing capacity is calculated based on the floor for remuneration at 85 percent of the SDR interest rate. Residual burden-sharing capacity is equal to the total burden-sharing capacity minus the portion being utilized to offset deferred charges and takes into account the loss in capacity due to nonpayment of burden sharing adjustments by members in arrears."

### Credit concentration trends (figures referenced)
- Figure titles in source:
  - "Figure 8b. Credit Concentration by Region (SDR billions), 1980 - 2014 1/"
  - "Figure 8a. Credit Concentration by Region (share of total), 1980 - 2014 1/"
- Source: Finance Department
- "1/ Projections of credit outstanding based on current arrangements, the proposed approval of a new arrangement for Greece and cancellation of Grecce's SBA, and assuming full purchases of committed amounts."

### IMF assessment of the proposed Extended Arrangement for Greece
- Purpose and conditional expectation
  - "The proposed Extended Arrangement for Greece is intended to support the authorities’ very ambitious and challenging program of macroeconomic adjustment and comprehensive structural reform."
  - If the program is successful, "Greece is expected to be able to resume economic growth, address its external imbalances, and put debt onto a sustainable path."
  - With sustained support of European partners—conditional on adherence to the program—in amounts adequate to backstop repayments and to help restore access to private markets, "Greece would be expected to be able to meet its obligations to the Fund on a timely basis." (paragraph 13)

- Downside risks to repayment capacity
  - "There are, however, substantial risks to the program, which, if they materialize, could adversely affect Greece’s capacity to repay the Fund."
  - The debt trajectory is "extremely sensitive to program delays and slippages," raising risks that Greece's debt sustainability could again come into question.
  - "No room for maneuver" due to extremely limited capacity to absorb slippages or adverse shocks and a narrow range of policy instruments.
  - Success depends on building and sustaining momentum across a wide range of policies that will stretch the social fabric and tax political support.
  - Requires a decisive break with the record of program implementation under the SBA, and continuation of vigorous program implementation following forthcoming elections and the likely change of government. (paragraph 14)

- Key determinants for program success (paragraph 15)
  - Successful implementation of measures to promote internal devaluation and to improve competitiveness and flexibility of the Greek economy.
    - "Examples of successful large internal devaluations under hard currency pegs are rare, even under more favorable circumstances."
    - "Greece’s starting situation is extremely challenging, and political resolve and bold front-loaded reform implementation are absolutely critical for internal devaluation to work."
  - Strong measures to address weak revenue administration and public financial management to complete fiscal adjustment required to achieve primary surpluses of 4½ percent of GDP by 2014.
    - This adjustment will require deep cuts in the size of government and a targeted reduction in social transfers to be implemented despite strong social and political resistance.
  - Performance of the real economy, specifically the assumption that improvements in competitiveness and labor market and other reforms will allow Greece to resume economic growth in 2014 despite ongoing fiscal consolidation and financial system deleveraging.
    - "Some combination of a larger than programmed fiscal multiplier, the deflator falling more than expected as competitiveness is corrected, or a slower-than-projected response of the economy to the supply side measures, would jeopardize the prospect of achieving debt sustainability."
  - Effective restructuring of the banking system, while keeping core elements solvent and liquid, to maintain depositor confidence and support economic activity.
    - "In this context, continued Eurosystem support will be essential."
  - Perseverance with an ambitious privatization program to reduce Greece’s debt and debt service burden and improve economic efficiency, thereby strengthening the tax and employment base and helping reduce the burden of fiscal adjustment.
    - Such privatization program, "with targets similar to past programs of a number of transition economies and other emerging markets, is essential to bringing the debt down to a more manageable position."
  - Long-term financing from Greece’s European partners on appropriate terms to help address deep structural problems and provide a backstop to Greece’s gradual return to market access.
    - This support "will build on the substantial debt relief expected to be provided by private creditors."

*Source: _cr1257 - 12.      This large exposure to a single region that is subject to highly correlated shocks (IMF staff report text, as of 3/8/2012).*

### 16.      If policies in these areas are not successful, Greece’s adjustment would be

### 16.      If policies in these areas are not successful, Greece’s adjustment would be

### Risks and downside scenario
- If policies are not successful, Greece’s adjustment would be undermined, with the likelihood that the debt trajectory would become unsustainable.
- Possible consequences of program failure:
  - Greece might be forced into a debt moratorium, which could lead to a disorderly exit from the euro zone in the absence of arrangements to backstop bank liquidity.
  - The new currency would likely overshoot (at least in the medium term).
  - Economic dislocations from balance-sheet effects and legal uncertainties would likely lead to a sharp compression in real activity.
  - Greece’s exposure to the Fund in terms of GDP would increase substantially, further undermining Greece’s capacity to repay the Fund.
- Conditional dependencies if the program goes off track:
  - Greece’s capacity to meet its obligations to the Fund would hinge critically on (a) the willingness of European partners to continue to backstop Greece’s payments capacity and (b) the Eurosystem’s capacity to backstop bank liquidity while further efforts are put in place to stabilize the Greek economy.
- Offsetting confidence signals noted:
  - Completion of the prior actions for the proposed program.
  - Assurance letters provided by the two main political parties.
  - Broad parliamentary endorsement of the policies contained in the MEFP.

### IMF financing decision and official support
- The Executive Board approved a four-year EFF arrangement for Greece of SDR 23.8 billion (about €28 billion, or US$36.7 billion).
- Immediate disbursement allowed: SDR 1.4 billion (about €1.65 billion, or US$2.2 billion).
- Exceptional access: 2,159 percent of Greece’s quota.
- Official sector support for the second Greek program: €130 billion (about US$170 billion) in new financing, in addition to the remainder of financing support for the first program of €34 billion (about US$44 billion).
- IMF contribution: €28 billion to be disbursed in equal tranches over a four-year period; represents about three-elevenths of the total (excluding PSI and ECB bond repayments).
- Result: Fund’s peak-exposure broadly unchanged relative to the SBA.

### Program objectives, targets, and policy priorities
- Program focus: restoring competitiveness and growth, fiscal sustainability, and financial stability.
- Structural reform priorities:
  - Competitiveness-enhancing structural reforms: bold labor market measures, liberalize professions and product markets, improve business environment, privatize state-owned assets.
- Fiscal targets and adjustment:
  - Reach a primary surplus of 4½ percent of GDP by 2014.
  - Program provides room for structural reform impacts in 2012, targeting a primary deficit of 1 percent of GDP in 2012.
  - Bulk of fiscal adjustment in 2013-14 to bring the primary balance to 4½ percent of GDP; about 5½ percent of GDP in additional spending cuts will be needed (despite intensified tax collection efforts).
  - Emphasis on strengthening the core social safety net and tax collection efforts.
- Financial sector priorities:
  - Secure liquidity support for Greek banks and provide funds for recapitalization, alongside incentives to preserve private ownership.
  - Strengthen resolution framework and governance of oversight agencies.
- Debt reduction expectations:
  - Combination of private and official sector involvement expected to deliver enough debt relief to place debt on a trajectory to fall below 120 percent of GDP by 2020 under the program baseline.
- Growth expectations:
  - Growth in 2012 expected to be in the range of -4½ to -5 percent.
  - Recovery expected to begin quarter-over-quarter in 2013, with moderate cyclical developments in 2014-2016.

### Prior actions, PSI/OSI, and program implementation signals
- PSI outcome:
  - PSI completed successfully with 85.8 percent voluntary participation and nearly 97 percent participation after activation of Collective Action Clauses.
  - PSI and OSI together expected to help reduce the debt-to-GDP ratio by about 8 percentage points.
- Prior actions:
  - Program incorporates an unprecedented number of prior actions (over 40 individual measures) under five general areas: (a) tax, expenditure and public wage policy; (b) new extensive tax administration reforms; (c) far-reaching labor market reforms; (d) a comprehensive assessment of banks’ capital needs; and (e) new framework for bank resolution and recapitalization.
  - All prior actions were fully implemented by March 8.
- Political and administrative support:
  - Endorsement of the program by leaders of the two major political parties and broad parliamentary endorsement.
  - Improving administrative capacity aided by technical assistance and resident staff from the Fund and European agencies.
  - Greece signed the “Commitment on Confidence in Statistics” on March 1, 2012; an independent statistical advisory board will be created.

### Financial stability and bank sector measures
- Bank-sector measures and governance reforms:
  - Complete an assessment of banks’ capital needs.
  - Enact legislation to support bank recapitalization and resolution.
  - Improve the structure of the Hellenic Financial Stability Fund and strengthen funding of the Hellenic Deposit & Investment Guarantee Fund.
  - Reform governance arrangements in the Bank of Greece.
- Role:
  - Bank recapitalization is key to restore confidence and to the supply response central to the new program.

### Key indicators and projections (selected exact figures from Annex and tables)
- GRA credit to Greece (In SDR millions):
  - Mar-12: 18,940.9
  - 2012: 23,138.3
  - 2013: 27,263.1
  - 2014: 26,581.8
  - 2015: 24,879.2
  - 2016: 23,552.1
  - 2017: 22,386.1
  - 2018: 20,287.4
  - 2019: 17,256.0
  - 2020: 13,408.4
- GRA credit to Greece (In percent of quota):
  - Mar-12: 1,719.1
  - 2012: 2,100.1
  - 2013: 2,474.4
  - 2014: 2,412.6
  - 2015: 2,258.1
  - 2016: 2,137.6
  - 2017: 2,031.8
  - 2018: 1,841.3
  - 2019: 1,566.2
  - 2020: 1,217.0
- Charges due on GRA credit (In SDR millions):
  - 2012: 453.3
  - 2013: 888.3
  - 2014: 1,161.2
  - 2015: 1,198.1
  - 2016: 1,246.8
  - 2017: 1,281.8
  - 2018: 1,234.0
  - 2019: 1,088.9
  - 2020: 887.4
- Debt service due on GRA credit (In SDR millions):
  - 2012: 453.3
  - 2013: 2,360.1
  - 2014: 7,439.0
  - 2015: 8,497.2
  - 2016: 3,973.1
  - 2017: 2,447.8
  - 2018: 3,332.7
  - 2019: 4,120.3
  - 2020: 4,735.0
- Selected debt and debt-service ratios (In percent of GDP):
  - Total external debt: 2012: 193.5; 2013: 199.7; 2014: 200.5; 2015: 193.0; 2016: 184.3; 2017: 174.2; 2018: 163.4; 2019: 152.8; 2020: 141.1
  - External debt, public: 2012: 147.9; 2013: 146.9; 2014: 139.4; 2015: 129.7; 2016: 120.8; 2017: 110.9; 2018: 104.4; 2019: 98.3; 2020: 91.7
  - Total public debt: 2012: 159.7; 2013: 164.0; 2014: 160.7; 2015: 153.0; 2016: 145.2; 2017: 137.4; 2018: 130.3; 2019: 123.3; 2020: 116.5
  - GRA credit to Greece (percent of GDP): 2012: 13.4; 2013: 15.8; 2014: 15.1; 2015: 13.5; 2016: 12.3; 2017: 11.2; 2018: 9.8; 2019: 7.9; 2020: 5.9
- Debt service ratios (In percent of GDP, general indicators):
  - Total external debt service: 2012: 24.2; 2013: 15.1; 2014: 19.5; 2015: 14.9; 2016: 10.2; 2017: 10.6; 2018: 9.0; 2019: 10.7; 2020: 10.7
  - Public external debt service: 2012: 19.1; 2013: 11.3; 2014: 17.4; 2015: 12.9; 2016: 9.1; 2017: 9.1; 2018: 7.8; 2019: 9.3; 2020: 9.4
- REER (2005 = 100):
  - Mar-12: 106.1
  - 2012: 103.2
  - 2013: 100.5
  - 2014: 98.2
  - 2015: 96.6
  - 2016: 95.4
  - 2017: 94.5
  - 2018: 93.8
  - 2019: 93.3
  - 2020: 92.7

### Recent economic developments and SBA outcomes (selected exact figures and outcomes)
- Cumulative real GDP decline since 2009: more than 13 percent.
- Real GDP:
  - Declined by more than 13 percent since 2009.
  - Projection for 2012 in table: -4.8 percent (table of selected economic indicators).
- Labor market and competitiveness:
  - Private investment led downturn in 2009; private consumption was main driver of recession in 2011.
  - Productivity growth turned positive only at the end of 2011.
  - Unemployment rose rapidly; table shows unemployment rate: 2010: 12.5; 2011: 17.3; 2012: 19.4; 2013: 19.4; 2014: 18.2; 2015: 16.8; 2016: 15.6; 2020: 11.7.
- Fiscal consolidation achievements:
  - Fiscal deficit improved by about 6 ½ percentage points of GDP between 2009 and 2011.
  - Primary deficit in 2011: 2 ½ percent of GDP, below long-run debt stabilizing level of a 1 ½ percent of GDP primary surplus.
- Measures under the SBA (selected exact policy steps):
  - VAT: three VAT rates increased; reclassification of goods and services to higher rates.
  - Excise taxes on fuel, cigarettes and alcohol raised by 33 percent.
  - Solidarity tax introduced on annual declared incomes higher than €12,000 with graduated tax rates ranging from 1% to 5%.
  - Nominal general government wages reduced by 30 percent; number of employees reduced by 10 percent (about 85,000).
  - State-owned enterprise employees cut by 18 percent; total personnel spending in SoE sector reduced by 29 percent.
  - Public sector pensions trimmed by 15.7 percent on average.
  - Pension reforms: unified system; effective retirement age increased to 65 and linked to life expectancy; minimum contributory period increased to 40 years.
  - Labor market reforms: part-time arrangements, sub-minimum wages for first-time entrants, 20 percent cut in overtime premia, probation period extended to 12 months, permissible layoffs raised from 2% to 5% per month of the active labor force.
  - Liberalization: 108 professions liberalized in 2011; fees for public notaries reduced by 30 percent.
  - Local administration consolidation: municipalities reduced from 1,034 to 325; local authority entities from 6,000 to 1,160; local elected officials from 30,795 to 16,657; prefectures replaced (53 to 17 regions).

### Implementation issues and mitigation
- Implementation weaknesses observed:
  - Delayed implementation of measures formally approved.
  - Incomplete or unsatisfactory implementation reflecting limited administrative capacity and lack of specialized knowledge.
- Mitigation factors cited by authorities:
  - Strength and front-loaded nature of the program (prior actions implemented).
  - Endorsement by leaders of two major political parties.
  - Improving administrative capacity supported by technical assistance and resident staff.

*Source: IMF staff report and Press Release No. 12/85 (March 15, 2012) as contained in the provided document.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr1257.pdf_