Draft Preliminary Agreement – 2 May 2017
Supplemental Memorandum of Understanding: Greece
1. Outlook and strategy
In July 2015, Greece requested support from its European partners to restore sustainable growth, create jobs, reduce inequalities, and address the risks to its own financial stability and to that of the euro area. In August 2015, the Hellenic Republic concluded an agreement for stability support in the form of a loan from the European Stability Mechanism for an availability period of three years. In accordance with Article 13(3) of the ESM Treaty, a Memorandum of Understanding was signed which details the conditionality attached to the financial assistance facility covering the period 2015-18. The conditionality is updated regularly, taking into account the progress in reforms achieved over the previous months. In each review the specific policy measures and other instruments to achieve these broad objectives outlined here will be fully specified in detail and timeline. This update reflects the agreement among the ESM, the European Commission acting on its behalf, and the authorities upon conclusion of the second review of the ESM programme.
Success requires ownership of the reform agenda by the Greek authorities. The Government therefore stands ready to take any measures that may become appropriate for this purpose as circumstances change. The Government commits to consult and agree with the European Commission, the European Central Bank and the International Monetary Fund on all actions relevant for the achievement of the objectives of the Memorandum of Understanding before these are finalized and legally adopted.
The recovery strategy takes into account the need for social justice and fairness, both across and within generations. Fiscal constraints have imposed hard choices, and it is therefore important that the burden of adjustment is borne by all parts of society and taking into account the ability to pay. Priority has been placed on actions to tackle tax evasion, fraud and strategic defaults, as these impose a burden on the honest citizens and companies who pay their taxes and loans on time. Product market reforms seek to eliminate the rents accruing to vested interest groups as the associated higher prices undermine the disposable income of consumers and the competitiveness of companies. The pension reform takes into account that existing pensioners find it more difficult to compensate for income losses and it has applied cuts progressively, based on the level of pensions. To get people back to work and prevent the entrenching of long-term unemployment, the authorities have accelerated the absorption of ESIF funds and are working to ensure an effective impact on the economy, both in the short and the long run. A fairer society requires that Greece continues to improve the design of its welfare system, so that there is a genuine social safety net which targets scarce resources at those who need them most. The authorities are benefitting from available technical assistance from international organisations on measures to provide access to health care for all (including the uninsured) and to roll out nationally a basic social safety net in the form of a Guaranteed Minimum Income (GMI) from the start of 2017.
Implementation of the reform agenda will provide the basis for a sustainable recovery, and the policies are built around four pillars:
VS – NfD. Die Bundesregierung macht sich den Entwurf nicht zu Eigen.
• Restoring fiscal sustainability (section 2): Greece will target a medium-term primary surplus of 3.5 percent of GDP to be achieved through a combination of upfront parametric fiscal measures. This is supported by an ambitious programme to strengthen tax compliance and public financial management, and fight tax evasion, while ensuring adequate protection of vulnerable groups. The authorities have created an autonomous revenue administration to secure effective revenue collection.
• Safeguarding financial stability (section 3): Further measures are needed to tackle the large stock of Non-Performing Loans (NPLs) beyond the adopted legislation on loan market (servicing, sales) and step-up of supervisory monitoring and measures (NPE targets and KPIs). Debtors and creditors need an effective and efficient out-of-court and in-court debt restructuring and insolvency framework to reduce the debt overhang vis-à-vis both public and private creditors. Banks and the public sector need to speed up the restructuring of debts and the liquidation of non-viable businesses to support the recovery of the economy along with the gradual phasing out of capital controls.
• Growth, competitiveness and investment (section 4): Greece will design and implement a wide range of labour and product market reforms that not only ensure full compliance with EU requirements, but which also aim at achieving European best practices. The authorities will continue to implement an ambitious privatisation programme, and a new independent Privatisation and Investment Fund (HCAP) has been established supporting a more efficient use of resources. Policies which support investment shall be framed within a comprehensive Growth Strategy.
• A modern State and public administration (section 5): Particular attention is being paid to the implementation of reforms to increase the quality and efficiency of the public sector in the delivery of essential public goods and services. Measures will be taken to enhance the efficiency of the judicial system and to upgrade the fight against corruption. Reforms will strengthen the institutional and operational independence and effectiveness of key Institutions and agencies such as the statistics institute (ELSTAT), the Hellenic Competition Commission and other regulatory agencies.
Programme success will require the sustained implementation of agreed policies over many years – which necessitates the political commitment, but also the technical capacity of the Greek administration to deliver – and to this end the authorities have committed to make full use of the available technical assistance. Technical assistance on the European side is coordinated by the Structural Reform Support Service (SRSS) of the European Commission. Technical assistance is already in place for some key reform commitments, including on tax policy and Public Financial Management (PFM), the reform of the custom and tax administrations, the review of regulatory barriers to competition, licensing simplification and doing business reforms, the social welfare review, the fight against corruption, support to the implementation of the Greek energy policy objectives, support to the Greek health reform programme, the modernisation of the judicial system and support to administrative reform. In October 2015, the Greek authorities and the European Commission finalised a medium-term technical assistance plan in line with the MoU signed in August 2015. In December 2015, the Greek authorities informed the Commission that VS – NfD. Die Bundesregierung macht sich den Entwurf nicht zu Eigen.
they would allocate EUR 30 million to technical assistance projects in the areas of PFM and privatization; economic development and procurement; justice and anti-corruption; public administration reform at both central and local level; labour, employment and social protection (including health and education). The transport sector and other sectors such as tourism, energy, waste and water are also addressed. These projects are aligned with previous TA requests (that they deepen and / or complement) and with the MoU, including this update.
Greece needs to build upon the agreed recovery strategy and develop a genuine growth strategy which is Greek-owned and Greek-led and fully uses available resources, including those provided by the EU. This should take into account the reforms included in this SMoU, relevant European Union initiatives, the Partnership Agreement of the implementation of the National Strategic Reference Framework (NSRF) and other best practices. Greece must benefit fully from the substantial means available from the EU budget and the European Investment Bank (EIB) to support investment and reform efforts. For the period 2007-2013, Greece was eligible for EUR 38 billion in grants from EU policies, and should ensure that all projects funded under that financing envelope are completed as planned and no later than March 2017 according to the EU regulations. For the 2014-2020 period, more than EUR 35 billion is available to Greece through EU funds and Greece should continue in its effort to maximise and speed up absorption of this envelope. The European Commission’s Investment Plan for Europe and the EBRD will provide additional sources of investment, as well as technical help for public and private investors to identify, promote and develop high-quality and feasible projects to fund, and the Greek authorities and operators should make full use of this opportunity.
The Greek authorities will finalise the growth strategy by May 2017, which inter alia should aim at creating over the next 2-3 years a more attractive business environment, enhancing growth opportunities from infrastructure, improving the education system as well as human capital formation through vocational education and training (See section 4.1), strengthening the financing of business, and developing R&D and innovation. It should also help design sectorial priorities in areas such as ICT, tourism, transport, pharmaceuticals and logistics, and agriculture and agro-food. The authorities will implement the strategy with the assistance of a Scientific Development Council including social partners and sectoral business organisations as well as by setting up an Advisory Panel of foreign investors (by May 2017).