EUROPEAN ECONOMY Occasional Papers 94 | March 2012 The Second Economic Adjustment Programme for Greece March 2012 Economic and Financial Affairs Occasional Papers are written by the Staff of the Directorate-General for Economic and Financial Affairs, or by experts working in association with them. The “Papers” are intended to increase awareness of the technical work being done by the staff and cover a wide spectrum of subjects. Views expressed do not necessarily reflect the official views of the European Commission. Comments and enquiries should be addressed to: European Commission Directorate-General for Economic and Financial Affairs Publications B-1049 Brussels Belgium E-mail: mailto:[email protected] Legal notice Neither the European Commission nor any person acting on its behalf may be held responsible for the use which may be made of the information contained in this publication, or for any errors which, despite careful preparation and checking, may appear. This paper exists in English only and can be downloaded from the website ec.europa.eu/economy_finance/publications A great deal of additional information is available on the Internet. It can be accessed through the Europa server (ec.europa.eu ) KC-AH-12-094-EN-N ISBN 978-92-79-22849-0 doi: 10.2765/20231 © European Union, 2012 Reproduction is authorised provided the source is acknowledged. EUROPEAN COMMISSION DIRECTORATE GENERAL ECONOMIC AND FINANCIAL AFFAIRS The Second Economic Adjustment Programme for Greece March 2012 OUTLINE OF THE REPORT Executive summary 1 1. Introduction 5 2. Macroeconomic developments 11 3. Financial markets and financial sector developments 17 4. Programme implementation and policy discussions 21 4.1 Fiscal policy 21 4.2 Fiscal strategy in 2012 and subsequent years 24 4.3 Structural fiscal reforms 31 4.3.1. Privatisation 31 4.3.2. Revenue administration, fight against tax evasion and tax reform 34 4.3.3. Expenditure control 35 4.3.4. Public administration, public procurement and social programmes 35 4.3.5. Healthcare and pension reform 36 4.4 Growth-enhancing structural reforms 37 4.4.1. Labour market 37 4.4.2. Regulated professions 41 4.4.3. Energy and transport 41 4.4.4. Business environment and reforms in product and service markets 42 4.4.5. Absorption of structural funds 43 4.4.6. Judicial reform 43 4.5 Fiscal financing and treasury management 44 4.6 Technical assistance and monitoring 48 Annex 1 Assessment of compliance with the Memorandum of Understanding on Specific Policy Conditionality 51 Annex 2 Macroeconomic forecast 85 Annex 3 Updated programme documents 91 LIST OF BOXES 1. Statement by the Eurogroup: 21 February 2012 6 2. Economic Adjustment Programme and social equity 8 3. Debt sustainability assessment 27 4. Private Sector Involvement 47 LIST OF TABLES 1. Disbursements under the first financing programme 5 2. Contributions by the euro area Member States to disbursements to Greece under the first financing programme 6 3. Member States guarantees to the EFSF 8 4. Macroeconomic scenario: main features 16 5. Ratings 18 6. Banking sector soundness indicators 19 i 7. Summary of compliance with policy conditionality 21 8. Fiscal quantitative criteria 22 9. Implementation monitoring: Estimated yield of measures agreed in June and October 2011 23 10. Developments in public employment 24 11. Main fiscal indicators 2010-14 25 12. Deficit and measures accounting: from the deficit in one year to the next 26 13. Privatisation plans: transactions, so far 31 14. Planned privatisation receipts 32 15. Privatisation – transactions in the pipeline 33 16. Arrears to suppliers 35 17. Minimum monthly wages 40 18. Interest rates and interest payments charged to Greece by the euro area Member States 45 19. Planned schedule of disbursement for the new programme 46 LIST OF GRAPHS 1. Real GDP growth 11 2. Business and Consumer Surveys 12 3. Equipment 12 4. Housing investment 12 5. Market shares : Performance of Greek exports of goods and services relative to the imports of 35 industrial countries 13 6. Exports and non-domestic industrial orders 13 7. Industrial production and capacity utilisation 13 8. HICP inflation developments and projections 14 9. HICP inflation main drivers 14 10. Employment and unemployment rate 15 11. Nominal Unit Labour Cost 15 12. Athens Stock Exchange Indices 17 13. Bank deposits 18 14. Greek banks' borrowing from the Eurosystem via monetary policy operations 18 15. Credit to private sector 19 16. Non-performing loans 19 17. Loan to deposit ratio by bank 19 18. State primary payments - 2011 22 19. Government primary balance – 2011. Outcomes and quarterly criteria 22 ii 20. Government revenue, expenditure and gross debt 24 21. Recourse to arbitration to settle negotiations disputes 39 22. Nominal Unit Labour Cost 39 23. Regulation of the airline industry 42 24. Outstanding stock of T-bills 44 29. T-bill auctions since July 2010 44 iii iv ACKNOWLEDGEMENTS The report was prepared in the Directorate General Economic and Financial Affairs, under the direction of Matthias Mors, director and mission chief. Contributors: Matthias Mors, Zeta Astra, Pedro Cardoso, Giuseppe Carone, Jakob E. Christensen, Fotini Dionyssopoulou, Riccardo Ercoli, Leila Fernández Stembridge, Luis García Lombardero, Loukas Kaskarelis, Frank Kohlenberger, Daniel Kosicki, Peter Lohmus, João Nogueira Martins, Ricardo Selves, Irmantas Simonis, Milda Valentinaitė, Rafał Wielądek and Ana Xavier, and Markus Zalewski. Christos Zavos was responsible for the layout. The report was prepared in liaison with the ECB. Comments on the report would be gratefully received and should be sent, by mail or e-mail to: João Nogueira Martins, European Commission, Unit ECFIN-G-3, BU 1 01-140, B-1040 Brussels. e-mail: [email protected] The cut-off date for this report was 11 March 2012. v vi