Quarterly Report for

the Greek Economy

4 - 2017

January 24th, 2018

IOBE – Foundation for Economic & Industrial Research (FEIR)
Report Overview
Global environment: stronger positive prospects
• Acceleration of world output growth to 3.3% y/y in 2017 Jan-Sep.
Prospect for annual growth of 3.7% in 2017 and 3.9% in 2018, best
performance since 2011
• Positive impact from high liquidity, low cost of money, capital market optimism,
fiscal stimulus in the US and in emerging economies
• Advanced economies grew at 2.2% y/y rate in 2017 Jan.-Sep.
• Emerging and developing economies grew at 4.2% y/y in 2017 Jan.-Sep.

• World trade volume expanded by more than 4% y/y in 2017 Jan.-Sep.

Prospect for annual growth rate of 4.7% in 2017 and 4.6% in 2018,
compared to 2.5% in 2016

• Acceleration of growth rates in the Eurozone, prospect for 2.4% y/y in

2017, 2.2% in 2018, best performance since 2007
Global environment: sources of uncertainty remain

International context
• Optimism in financial markets  high asset valuations, beyond fundamentals
• Gradual transition by major central banks towards tighter monetary stance
(beginning with FED, Bank of Canada)
• High credit expansion rates in emerging economies such as China

Eurozone
• Non-Performing Loans, concerns about the banking system impacting the real
economy
• Elections in Italy and concerns for rising euroskepticism
• BREXIT negotiations
• Refugee flows administration
 Greece: Growth deceleration in 2017 Q3
2017 Q3: +1.3% y/y, versus +1.6% y/y in 2017 Q2 and +1.3% y/y
in 2016 Q3
2017 Jan.-Sep.: GDP increase by 1.1% y/y, compared to flat
trend in 2016 Jan.-Sep.

Main y/y changes of GDP components in 2017 Jan.-Sep.:

• High demand for exports (+7.6%, versus -4.0% in 2016)
o Import increase of higher magnitude than export growth (+8.5%, versus -0.1%)
 Deterioration of external balance for the first time since 2014: deficit
increase by 18.3% (€4.2 bn)
• Increase in investments (+12.9% versus +17.0% in 2016)
o Positive impact from rise in inventories. Fixed capital formation: +2.6%
• Mild increase in household consumption (+0.6% versus 0.0% in 2016)
 State Budget 2017 (cash basis)
• Outcome 2017: Targets were met (2018 introductory budget
report modified targets)
• Primary surplus €1.97 billion, versus €2.8 billion in 2016 and
target of €877 million.
• Achieved through expenditure containment:
 €949 million lower Ordinary Budget spending
 €800 million less funding from the Public Investment Program  lowest level
since 2000

• Ordinary revenues mild over-performance (+€110 million), but

shortfall for the State budget revenues, due to lower inflows
from the EU in relation to public investment (-€1.2 billion)
 Introductory Budget Report 2018

• Forecast for General Government Primary Surplus: €7.05

billion (3,82% of GDP) in 2018, versus €4.36 billion
(2.44% of GDP) in the previous year

Changes with respect to MTFS 2018 – 2021

• Lower revenues from direct taxes by €687 million, and smaller
interest payments by €700 million
• Changes in national account adjustments (e.g. transfer of revenues
from the last installment of ENFIA property tax from Jan. 2018 to 2017,
larger difference between cash and accrual interest by €1 billion)
• Offset by significantly larger surplus in Social Security Funds (+
€1.63 billion)
 Current features of economic environment

Improved economic sentiment following the completion of the

third program review
 Credit rating upgrade by S&P  opportunities to refinance public debt, as well as
banks and large enterprises to tap capital markets with better terms
 Mild, continuing recovery of deposits since May 2017  improving banks’ capital
 No room for complacency, need to successfully complete the next review, and
negotiations on medium term debt relief measures

Continuation of fiscal adjustment

 Fiscal measures for 2018 (MTFS 2018 - 2021)
o Direct taxation: abolishment of tax deduction after tax clearance,
tax deduction with respect to medical expenses, increase in self- Further pressure
employed social security contributions on real, disposable
o Indirect taxation: VAT increase in the Aegean - Dodecanese income
islands, imposition of a residence tax on accommodation

 Small containment of the new measures’ effects from the higher “social dividend”

 Unless the optimistic forecast for the SSF surplus is realized, potential changes in the fiscal mix
 Current features of economic environment

Banking system at a crucial juncture

 ECB’s stress test
 Management of “red” loans, e-auctions
As well as…
 Slow, but steady return of deposits
 Successful issues of covered bonds
•Further credit contraction in
2018 H1
•Potential coverage of capital
needs through capital markets
•Mild credit expansion after the
stress test and under condition
of continuing deposit inflows

Exports at a steady expansion path

 Favorable international environment
 Eurozone growth higher than expected

 Expansion of global trade escalates

 Further mild euro appreciation slightly hampers competitiveness

 But partially offsets the increase in oil prices
 Current features of economic environment

Prospects of higher public sector contribution to liquidity –

investment

 Speeding up of the implementation of the Public Investment

Program
o Following under-execution and with significant delays in 2017

 Ability of accelerating the payments public sector arrears

o A €1.5 billion part-payment for this purpose is included in the new loan installment (+
another €750 million "national contribution")
o Sufficient amount to cover a large part of the arrears at the end of past November (≈
€3.9 billion)

 Investment in (completed) privatisations

o However, ambitious HRADF program for 2018. More actions than any other year and
relatively high projected revenues (€2.74 billion, after €1.66 billion in the previous year)
Continuous increase of industrial production in
Jan-Nov 2017
Industrial Production Index (volume)
20%

Euro area-19 Greece

15%

10%

5%

0%

-5%

-10%

-15%

-20%
2005Q3

2006Q2

2007Q1

2007Q4

2008Q3

Oct.-Nov. '17
2005Q1
2005Q2

2005Q4
2006Q1

2006Q3
2006Q4

2007Q2
2007Q3

2008Q1
2008Q2

2008Q4
2009Q1
2009Q2
2009Q3
2009Q4
2010Q1
2010Q2
2010Q3
2010Q4
2011Q1
2011Q2
2011Q3
2011Q4
2012Q1
2012Q2
2012Q3
2012Q4
2013Q1
2013Q2
2013Q3
2013Q4
2014Q1
2014Q2
2014Q3
2014Q4
2015Q1
2015Q2
2015Q3
2015Q4
2016Q1
2016Q2
2016Q3
2016Q4
2017Q1
2017Q2
2017Q3
Sources: ELSTAT, Eurostat

Jan. – Nov. 2017: 4.4% increase, instead of +2.5% during the same period of 2016
But also gradual growth slowdown during 2017 (9.4% in 2017 Q1, 3.5% in 2017 Q3)
Increase in the majority of the most significant sectors
• Mining: +8.1%, instead of -15.9% a year ago, Manufacturing: +2.9%, after +4.7%, Electricity:
+10.3%, after -0.1%
Moderate improvement in Retail Trade
Retail Trade Volume Index (2010=100) and Retail Trade Confidence Indicator (1996-2006=100)
130 130

120 120

110 110

100 100

90 90

80 80

70 70

60 60

50 50

40 40

Retail Trade Volume Index (left axis) Retail Trade Confidence Indicator (right axis)

Sources: ELSTAT, IOBE

Jan. – Oct. 2017: +1.6%, instead of -1.0% in 2016

Greater increase in Books – Stationery (+8.4%, after 3.3%) and Pharmaceutical products (+4.6%,
following -1.6%)
Greater loss in Food - Beverages (-3.5%, instead of -0.4%) and in Automotive Fuel (-1.7%, after -4.0%)
Economic Sentiment in 2017 Q4 same as in Q3

Economic Sentiment Indicator

120

110

100

90

80

70

60

50
Dec-06

Jun-07

Dec-07

Dec-08

Dec-09

Dec-10

Dec-11

Dec-12

Dec-13

Dec-14

Dec-15

Dec-16

Dec-17
Jun-08

Jun-09

Jun-10

Jun-11

Jun-12

Jun-13

Jun-14

Jun-15

Jun-16

Jun-17
EU Economic Sentiment Eurozone Economic Sentiment
Greece Economic Sentiment Greece average (2001-2016)

Sources: ΙΟΒΕ, European Commission

Overall in 2017 in Greece improvement of expectations with respect to 2016

Economic sentiment at a higher level also in the Eurozone and the EU
Consumer Confidence recovers in Q4, as well as in
2017 as a whole
Consumer Confidence Indicator
10

-10

-20

-30

-40

-50

-60

-70

-80

-90
Dec-06

Dec-07

Dec-08

Dec-09

Dec-10

Dec-11

Dec-12

Jun-13

Dec-13

Dec-14

Dec-15

Dec-16

Dec-17
Jun-07

Jun-08

Jun-09

Jun-10

Jun-11

Jun-12

Jun-14

Jun-15

Jun-16

Jun-17
EU Comsumer Confidence Eurozone Consumer Confidence
Greece Consumer Confidence Greece average (2001-2016)

Sources: ΙΟΒΕ, European Commission

Number of unemployed persons below 1 million,
for the first time since 2011 Q3
Number of unemployed and Unemployment rate in Greece
1,400 30
27.2
24.9 25.5
1,200 24.0
25
22.6

1,000 20.2
17.9 20
thousands

800

%
15
12.6 1,320
600 11.7 1,218 1,229
10.8 10.9 1,161
10.2 9.8 10.2 9.8 1,093
9.3 9.4
8.4 8.0 970 10
7.3 884
400
632
491 536 505 482 500 487 478
471 452 421 5
200 398 364

0 0
3Q/1999

3Q/2007
3Q/1998

3Q/2000

3Q/2001

3Q/2002

3Q/2003

3Q/2004

3Q/2005

3Q/2006

3Q/2008

3Q/2009

3Q/2010

3Q/2011

3Q/2012

3Q/2013

3Q/2014

3Q/2015

3Q/2016

3Q/2017
Unemployed persons (left axis) Unemployment rate (right axis)

Source: ELSTAT

 Unemployment rate of 20.2% in 2017 Q3, after 22.6% in 2016 Q3 and 21.1% in 2017 Q2
 Employment increase in 13 sectors. Indicatively: Constructions (+6.9%), Tourism (+4.6%), Wholesale-Retail
trade (+3.3%), Education (2.2%), Manufacturing (+1.8%)
 On the contrary, employment declined in 8 sectors. Indicatively: Real Estate Management (-42.9%), Mining-
Quarrying (-19.3%), Public Administration (-1.0%), Agriculture-Forestry-Fishery (-0.9%)
Current Account deficit shrinks to €213 million during Jan.-
Nov. 2017, versus €864 million in 2016
Balance of Payments, January-November 2002-2017

Current Account Balance Balance of Goods and services

5 100
0.4
78.8
0 72.6 80
-1.1 -0.9 -0.2 61.8 60.6 62.1 59.7
-5 -3.0 56.9 55.2 56.4
54.0 52.2 60
47.0 48.5 46.2
-6.3
-10 41.2 43.7
-9.3 52.7 50.7 51.3 54.0 49.4 52.2 40
43.0
48.3 45.7 48.4 45.9
billion €

-15 -13.0 -12.7 39.8 41.5

36.3

billion €
-15.0 30.2 30.7 20
-20 -18.6
0.9 0.1
-25 -22.6 0
-23.1 -10.9-13.0-14.2-10.7 -11.3 -6.2 -3.9 -2.5 -0.3
-26.0 -18.8 -19.1-16.4
-30 -24.3-26.1 -20
-30.6
-35 -33.4 -40

-40
Net Exports (of goods and services) Exports of Goods and Services
Imports of Goods and Services

Source: BoG

Higher surplus in the Services balance, which is counterbalanced from a growing Goods
deficit
Higher revenues in 2017 of €1.4 billion from Tourism
 Inflation after 4 consecutive years of deflation

Greece: Harmonized inflation

Harmonized inflation (HICP)
(12-month rolling average)
3%
3%
2% 2%
1.1%
1% 1%

0% 0%

-1% -1% -0.1%

-2% -2%

-3% -3%

2012M08
2012M11
2013M02
2013M05
2013M08
2013M11
2014M02
2014M05
2014M08
2014M11
2015M02
2015M05
2015M08
2015M11
2016M02
2016M05
2016M08
2016M11
2017M02
2017M05
2017M08
2017M11
2012M08
2012M11
2013M02
2013M05
2013M08
2013M11
2014M02
2014M05
2014M08
2014M11
2015M02
2015M05
2015M08
2015M11
2016M02
2016M05
2016M08
2016M11
2017M02
2017M05
2017M08
2017M11
Eurozone Greece overall price level
price level excl. energy products and at constant taxes

Source: Eurostat, ΙΟΒΕ data processing

Euro area: Price increase in 2017, mainly due to oil prices

Greece: Inflationary pressure stemming mainly from increases in indirect taxation
Consumer Price Index change in 2017: +1.1% y/y, versus deflation of 0.8% in 2016
Producer Price Index: 5.6% y/y, versus -6.7% y/y in 2016; largely due to oil prices
 2017 Forecasts
• Increase of private consumption (≈ 0.8% y/y), as most of the employment growth
in extrovert sectors during the first 3 quarters of 2017 was retained in its last quarter
 Small stimulus at the end of December from a largest than 2016 “social dividend”

• Public consumption decline (≈ -1.8% y/y)

 Consumption spending remains on a downward path during the last quarter of 2017,
albeit at a slower pace, despite the disbursement of the second assessment installment

• Investment expansion (≈ 13.5% y/y):

 In view of the ECB stress test, net bank credit flows remained negative during 2017 Q4
 Significant under-execution of the Public Investment Program
 On the other hand, strong positive technical effect from inventories and small recovery of
building activity

• Export increase (8.0% y/y), by growth acceleration in the EU, prolonged tourist
period, increase in international transportation services
• Import expansion continues due to consumption demand: overall in the previous
year, +8.3%
 2017 Forecasts
Unemployment decline by 2 ppts

• Higher employment growth in extrovert sectors during the

previous year (Manufacturing, Tourism)
• Boost to employment in the Wholesale – Retail Trade
sector by higher household consumption
• Positive effects on employment during the 2017 autumn
from the Constructions sector

Projection for a 1.3% growth in 2017 unchanged

 2018 Forecasts
• Small acceleration of private consumption expansion (≈ 1.3% y/y) due to:
 Further ease of unemployment, from job creation in extrovert sectors (Manufacturing,
Tourism) and in construction activities (in privatizations, building construction)
 Counterbalancing effects from new fiscal measures

• Increase in public consumption (≈ 1.5% y/y)

 Fiscal adjustment mainly based on revenue increases (abolition of tax discounts,
increase of existing and imposition of new indirect taxes)

• Escalation of investment (≈ 16% y/y) driven by:

 Launch of investment in privatization projects
 Investment by extrovert sectors, with expanding exporting activity
 Access to finance by bigger businesses through capital markets
 Front-loading of Public Investment Program implementation
Obstacles to investment activity (downside risks):
 Limited bank credit, at least until the forthcoming stress test is completed and its
results are managed
 Growth acceleration in 2018
External sector
Export expansion (7.0% y/y) driven by:
 Growth dynamics in the EU and in emerging exporting markets (Middle East,
North Africa)
 Further increase in tourism activity

Expected increase also in imports, at a (marginally) 2-digit rate

 High correlation between an increase of domestic demand and imports in
2017
 Mild impact on imports from higher investment, as a significant share of
them will be headed towards construction

Acceleration of GDP growth in 2018, to 2.1% y/y

 Forecasts for 2018: Further drop of
unemployment, mild inflation
Further unemployment decline
• Boost to employment through a new increase of external demand in certain
sectors (Manufacturing, Tourism, Transportation)
• Expected significant contribution of the Constructions sector
• Employment expansion (full-time, part-time), in the public sector

Average unemployment rate this year at c. 20%

• Stronger consumption demand, as well as increases in indirect taxes and

imposition of new ones, will preserve inflationary trends
• Mild inflationary effects from expected new oil price increase and changes in
electricity charges
• New price increase, milder than in the previous year (0.8%)
ΙΟΒΕ Study:

Food Bank: A tool for addressing food insecurity

and food waste in Greece
Food insecurity is a significant social problem

Possible effects of food insecurity

Mental and
Reduced
physical
performance of
development
children in school
problems

Excessive
consumption of high-
calorie foods
(obesity)

A person is in a state of food insecurity when there is a lack of secure access to adequate
amounts of nutritious food for normal development and for an active and healthy life
About 1.4 million people were experiencing food
insecurity in 2015 in Greece
Food insecurity Food Waste
16 7%
14.2
13.8
14 13.0 12.9 6%

12
5%

% of total production
10 9.2
% of population

4%
7.9 7.1 7.8 7.6 7.9
8 8.7
8.4
8.1 3%
7.7 7.6 7.8
5.8 7.1 7.3
6 6.9 6.9
6.5
2%
4

1%
2

0%
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Greece Euro area Greece Europe World

Source: Eurostat Source: Food and Agriculture Organization of the United Nations

Persistently higher percentage of food waste in Greece compared to the EU

average
There is a significant delay in the utilisation of the
FEAD resources in Greece
Approved expenditure over total budget (%)
Per capita FEBA resources
Lithuania NL
Greece 98.1%
SE 57.4%
Romania
Latvia LT 30.9%
Portugal BE 29.5%
Bulgaria
Poland LV 27.2%
Spain SI 27.0%
Italy
Slovakia FR 26.7%
Slovenia FI 24.2%
Hungary
Malta RO 23.7%
Croatia LU 22.9%
France
EU ES 19.2%
Luxembourg BG 18.0%
Belgium
Estonia PL 16.0%
Ireland EE 14.5%
Cyprus
Finland IT 14.1%
Czech Republic AU 13.7%
Austria
Germany PT 10.7%
Sweden CZ 9.3%
Denmark
Netherlands GR 0.8%
United Kingdom SK 0.4%
0 5 10 15 20 25 30 CY 0.2%
€ per capita (total population)

Source: European Commission

Improvement in the implementation of the program in Greece in 2016 ( absorption of €3.4

million); still, there is considerable room for intensfication
Multiple social benefits from upgrading the activity of
food banks
Model of operation of food banks

Businesses, institutions, … to the food banks … to soup kitchens and other

individuals… charities

…offer food donations... … for their effective management, storage and

distribution…

Policy proposals

Support the Effective participation

establishment and of the civil society in
growth of food banks the design and
throughout the Greek management of the
territory FEAD food assistance
Special Topic:

Greece’s exit from the memorandum

 General Government fiscal balance

70

60

50

40

30
% GDP

20

10

-10

-20
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019
Gen Gov balance Gen Gov revenues Gen Gov expenditures

Source: Eurostat - European Economic Forecast – Autumn 2017, European Commission

 Investment

70 30%

60
25%

50
20%

40

% GDP
€ bln

15%
30

10%
20

5%
10

0 0%

2015
1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2016
Investments (€ bln) Investments (% of GDP)

Source: ELSTAT
 External sector

40 120

30 100

2010 = 100, compared to EU-15

20 80
% GDP

10 60

0 40

-10 20

-20 0
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019
Current Account Banlance (left axis) Exports (left axis) REER (right axis)

Sources: AMECO, ELSTAT

 € bln

50

0
100
150
200
250
300
350
Jan-01
Jun-01
Nov-01
Apr-02
Sep-02

Source: Bank of Greece

Feb-03
Jul-03
Dec-03
May-04
Oct-04
Mar-05
Aug-05
Jan-06
Jun-06
Nov-06
Apr-07
Sep-07
Feb-08
Jul-08
Dec-08
May-09
Oct-09
Mar-10
Aug-10
Jan-11
Deposits*

Jun-11
Nov-11

* Towards monetary and financial institutions, excluding the Bank of Greece (end-of-period stocks)
Apr-12
Sep-12
Feb-13
Jul-13
Dec-13
May-14
Oct-14
Mar-15
Aug-15
Jan-16
Jun-16
Nov-16
Apr-17
Sep-17
 Timeline of significant political events

25/01/2015:
45
14/02/2012:
2nd
10-year Greek Parliamentary
06/05/2010: Memorandum Government Bond Yield elections. Coalition
government SYRIZA –
25/05/2016:
1st Eurogroup ratifies
Memorandum (%) ANEL. A. Tsipras the Staff Level
04/10/2009: Prime Minister
40 Agreement on the
Parliamentary 17/06/2012: first review of the
elections. Parliamentary 05/07/2015: 3rd MoU and
PASOK winning 11/11/2011: elections. Coalition “No” prevails at foresees debt relief
party. G. Papandreou resigns. government ND- the referendum measures on the
35 Papandreou Coalition government PASOK – DIMAR. A. short, medium and
Prime Minister PASOK – ND- LAOS. L. Samaras Prime long-term horizon
Papademos Prime Minister 14/08/2015:
Minister 3οrd
30 Memorandum
27/11/2012:
Eurogroup
decision on 20/09/2015:
bonds buyback Parliamentary
program 15/06/17: Το
25 elections. Eurogroup
Coalition confirms the
government completion of the
SYRIZA – ANEL. Prior Actions of
A. Tsipras Prime
20 Minister
the second review
of the 3rd MoU

15

10

0
13/2/2009

22/7/2009

25/5/2010
13/7/2010
31/8/2010

8/12/2010
28/1/2011
21/3/2011
12/5/2011

22/8/2011

19/1/2012

18/4/2012

16/7/2012
25/8/2012
4/10/2012

12/3/2013
20/4/2013
31/5/2013

17/8/2013
23/9/2013

7/12/2013
18/1/2014
28/2/2014

19/5/2014
26/6/2014

10/9/2014

1/12/2014
12/1/2015
20/2/2015

20/5/2015

11/8/2015
19/9/2015

8/12/2015
19/1/2016
26/2/2016

25/5/2016
12/7/2016
25/8/2016
5/10/2016

27/2/2017
13/4/2017

16/7/2017
31/8/2017

5/12/2017
7/4/2009
2/6/2009

9/9/2009
29/10/2009
17/12/2009
9/2/2010
1/4/2010

19/10/2010

1/7/2011

10/10/2011
29/11/2011

2/3/2012

3/6/2012

15/11/2012
25/12/2012
1/2/2013

9/7/2013

30/10/2013

9/4/2014

4/8/2014

22/10/2014

1/4/2015

2/7/2015

27/10/2015

7/4/2016

21/11/2016
9/1/2017

1/6/2017

19/10/2017
Source: https://www.investing.com/rates-bonds/greece-10-year-bond-yield-historical-data
 Timeline of public debt amortization payments*

14

12

10

8
billion €

0
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
2049
2050
2051
2052
2053
2054
2055
2056
2057
2058
2059
ECB EFSF EIB ESM Eurozone governments IMF Private Investors Treasury Bill Holders

*Excluding public debt held by creditors who did not participate in the PSI+
Source: https://graphics.wsj.com/greece-debt-timeline/
Post-2018 commitments stemming from the current
program
Fiscal framework
• Primary surpluses at 3.5% of GDP until 2022, “equal to or above but close to” 2% during
2023-2060, according to the EC
• Fiscal “cutter”– Automatic annual mechanism for spending containment, as a function of
previous year’s shortfall from fiscal target
• Measures on current pensioners in 2019 & pension freeze until 2022
• Reduction of tax free threshold in 2019 or 2020
• Use of potential “fiscal space”, as of 2019 according to the EC and as of 2023 according to
the IMF, for specific expansionary measures

Structural reforms
• Financial sector: Banks to implement strict operational plan for the reduction of “red”
loans, at least until 2019
• Product markets & privatizations: PPC, DEPA, DESFA, Egnatia highway, marinas,
TAIPED operations until at least 2020
 Pending issues in the medium term
During the adjustment programs 2010-2018, Greece corrected to a large extent its
imbalances of flows, both on the macro and fiscal fronts
• Fiscal balance
• External balance

There are at least three pending issues in relation to fiscal balance, that impede the growth
prospects in the medium and long term time horizons.
• A particularly large stock of public debt (non-sustainability assessment by the IMF)
• The fiscal mix which led to the current fiscal position is based rather on an increase of taxes
and is not sustainable in the long run
• The target for large primary surpluses until 2060 restricts the capacity of fiscal policy to
alleviate negative economic shocks during the business cycle

A discussion with an objective to reach a new form of agreement with the European
partners, which will tackle the aforementioned issues, is likely and desirable. In exchange but
also for its own benefit, Greece will be asked to consistently continue to reform.
Current agreement with the ESM on debt relief
Short-term measures – adopted since January 2017
They include: smoothing repayment profile, reducing interest rate risk and margin

Medium-term measures –expected at the end of the program (Aug. 2018), conditional
upon:
• Successful completion of the program
• a DSA which concludes that they are necessary
They include: capping and deferral of interest payments, reducing interest rate margin, repayment horizon extension

Long-term measures – foreseen after the end of the program, conditional upon:
• Compliance with the fiscal rules and targets set by the Stability & Growth Pact
• Observation that the economic conditions follow an “unexpectedly more adverse scenario”
They include: capping and deferral of interest payments, EFSF re-profiling

The currently agreed debt relief measures include the following sustainability criterion:
• Annual Gross Financing Needs up to 15% of GDP in the medium-term
• Annual Gross Financing Needs up to 20% of GDP in the long-term
A mechanism is being examined which would link debt relief with the actual growth rates
(Eurogroup 22/01/18). The IMF believes that the current agreement is insufficient.
 ESM’s role after the program
Among the 2015 program €86 bln, €59 billion are expected to have been disbursed by
August 2018. This implies an unused pool of funds of circa €27 billion
• Security buffer for the banks’ forthcoming stress test
• Possibility to link funds with new mechanism of debt relief or buyback, under conditions?

Monitoring through Early Warning System

• Based on semi-annual audits of the government’s liquidity position, of consultative nature.
In case of repayment risk, the ESM consults with the EC and ECB and other Eurozone
bodies.
• It applies to all countries which have received funding by the ESM or the EFSF (Spain,
Cyprus, Portugal, Ireland, Greece), with an aim to:
• Determine the ability of the program country to timely repay its loans
• Identify liquidity risks and recommend corrective measures
• Ends upon full repayment of the loan, hence for Greece in 2060

ESM collaboration with the EC in the context of Post-Program «Surveillance» through semi-
annual audits or «Enhanced Surveillance» through quarterly audits.
 EC’s role after the programme
Post – Program Surveillance
• Established since 2013 (Regulation EU 472/2013)
• Applied to all countries which since 30/5/2013 have been or will be receiving funding by other
member countries, or third countries, the EFSM, the ESM, the EFSF, the IMF, and for which
countries the program has been completed.
• A country remains under surveillance until at least 75% of its funding has been repaid.
• Taking into account Greece’s stock of debt towards other countries, the EFSF and the ESM,
the post-program surveillance process will end around 2050.

• The Council, following a proposal by the Commission, may extend the post-program
surveillance, in case there are concerns about fiscal sustainability.
• The Commission undertakes post-program auditing missions jointly with the ECB. The Council,
following a proposal by the Commission, may recommend the member state to take corrective
measures.
• The process does not foresee sanctions for countries which do not follow the
recommendations.
 EC’s role after the program

During a macroeconomic adjustment program, a country is exempted from

the following:
• Some obligations stemming from the Stability & Growth Pact (e.g. report for the
acceleration of the Excessive Deficit Procedure (EDP), monitoring for the
suspension of the EDP)
• Monitoring under the European Semester
• The Regulation in relation to excessive macroeconomic imbalances (EC
1176/2011)

Upon completion of a macroeconomic adjustment program, the

aforementioned exemptions cease to apply. Hence, all the obligations of EC
and Eurozone members enter into force.
 EC’s role after the program

European Semester
• Starts with the Commission’s Annual Growth Survey, every autumn, to apply in the next year
• The review of the draft State budgets for the forthcoming year is performed in the context of the
Stability & Growth Pact

• Macroeconomic Imbalances Procedure: Every November, the EC publishes the Alert

Mechanism Report, aiming to identify countries with potential economic imbalances.
• If there is need for further analysis of the situation in a country, the EC undertakes an in – depth
country review. A country may be classified as “without imbalances”, “with imbalances”, “with
excessive imbalances” or “with excessive imbalances and corrective actions”.
• If the EC assesses that a member state exhibits excessive imbalances, then the Council
recommends a package of policy measures and a deadline within which the member state has
to submit a corrective action plan.
• If the plan is considered adequate, then the Council approves it. The member state submits to the
Council and the Commission periodic progress reports.
• In case a member state repeatedly fails to submit an adequate corrective action plan or fails
to implement it, then the member state is likely to face sanctions.
 EC’s role after the program

Stability and Growth Pact

The preventive arm includes:
• Setting Medium-Term Budgetary Objectives (MTOs)
• Preparing stability and growth program, outlining how countries intend to
reach the MTOs
• The Significant Deviation Procedure, aiming to take measures to correct the
observed deviation from the MTOs and to avoid the opening of an Excessive
Deficit Procedure

• Sanctions are foreseen only for countries members of the Eurozone which
for a prolonged period of time do not take corrective measures to reduce the
deviations from the MTOs (by the second Council decision on the lack of
effective action)
• Sanctions: Deposit of 0.2% of GDP of the year prior to the one when the
sanction imposition decision was taken
 EC’s role after the program

Stability and Growth Pact

The corrective arm includes:
• The Excessive Deficit Procedure (EDP)

• Activated when a member state:

a) Exceeds or is close to exceed the 3% of GDP ceiling for budget deficit
b) Faces public debt above 60% of GDP, which is not diminishing at a satisfactory pace
(average reduction of the gap between a country’s debt level and the 60% threshold, on average over
three years by at least 1/20th annually)

• As long as a member state does not take sufficient measures to reduce the deficit and/or
its debt, it is subject to sanctions:
• Deposit of 0.2% of the previous year GDP (for Euro Area members only)
• Partial or full suspension of transfer payments from the Structural Funds
• In case of repeated non-compliance with the Council’s decisions, additional sanctions
are imposed:
• Deposit of 0.2% of GDP, for as long as non-compliance lasts + additional deposit of up to 0.5%
of GDP (for Euro Area members only)
• Partial or full suspension of transfer payments from the Structural Funds
 IMF’s role after the program
The €1.9 billion of the current SBA program approved-in-principle (2017) is likely not
going to be disbursed. From the previous program (EFF 2012), after August 2018 and until
June 2024, there are repayments due of around €8,5 billion.

Post-Program Monitoring
• Based on annual or more frequent reviews of consultative nature. The conclusions are
presented at the IMF Board and then published. Focus is given on macroeconomic and
structural policy recommendations.
• Applies to all countries which have received funding by the IMF, in an objective to safeguard
the timely repayment of the loan
• Ends when a country which is no longer under a program:
• Faces outstanding debt repayments to the IMF which is below 200% of its quota, and
• Faces outstanding debt repayments to the IMF below €1.9 billion.
• Under current conditions, the aforementioned criteria imply that Greece will be under the
IMF’s Post-Program Monitoring framework until 2022.
Thank you for your attention!
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