IP/10/116

Brussels, 3 February 2010

Commission assesses Stability Programme of

Greece; makes recommendations to correct the
excessive budget deficit, improve competitiveness
through structural reforms and provide reliable
statistics

The European Commission on Wednesday adopted a series of

recommendations to ensure that the budget deficit of Greece is brought
below 3% of GDP by 2012, that the government timely implements a reform
programme to restore the competitiveness of its economy and generally runs
policies that take account of its long-term interest and the general interest of
the euro area and of the European Union as a whole. More specifically, the
Commission adopted an opinion on the Greek Stability Programme for 2010-
2013, a Recommendation under Art 126(9) of the Treaty on the correction of
the excessive deficit, a Recommendation under Art 121(4) of the Treaty on
structural reforms and launched an infringement procedure to ensure the
authorities comply with their duty to report reliable budgetary statistics. It is
the first time that the budgetary and economic surveillance instruments
foreseen in the Treaty are used simultaneously and in an integrated way. The
Commission shares the ambitious budget-deficit reduction targets that the
Greek government has set itself as well as the fiscal measures and structural
reforms announced in the stability programme. The Commission also
welcomes the announcement by the Greek government, on Tuesday, of a set
of additional fiscal measures (concerning the wage bill, excises on fuel and
pension reform), to safeguard the budgetary targets set in the programme. It
calls on Greece to spell out the announced fiscal measures and
implementation calendar in the coming weeks and welcomes its readiness to
adopt and swiftly implement additional measures if needed. The fiscal
measures to be implemented in 2011 and 2012 should also be further
detailed. Implementation of all the measures, including the reforms to
increase the competitiveness of the economy in the field of pensions,
healthcare, public administration, the functioning of product markets, labour
market, absorption of structural funds, supervision of the financial sector,
and statistics, will be carefully monitored through regular reports to be sent
to the Commission by Greece.
"Greece has adopted an ambitious programme to correct its fiscal imbalances and to
reform its economy. Yesterday's announcement strengthens the government's
commitment to deliver the programme's objectives of more sustainable public
finances and a more competitive economy. This is in the interest of the Greek
people, who will benefit of better and more durable growth and job opportunities in
the future, and it is in the interest of the euro area and of the EU as a whole. The
Commission fully supports Greece in this difficult task," said Economic and Monetary
Affairs Commissioner Joaquín Almunia, adding: "The Commission will monitor the
execution of the budget and of the reforms very closely and regularly and welcomes
the Greek government's readiness to adopt further measures as and when
necessary".
On 15 January, the Greek government submitted to the Commission its stability
programme for the period 2010-2013 which envisages reducing the budget deficit by
4 percentage points to 8.7% of GDP in 2010 and thereafter to 5.6% in 2011, 2.8% in
2012 and 2% en 2013. The programme contains a package of concrete fiscal
consolidation measures for 2010, with an estimated quantification for each of the
measures, as well as a timeframe for their adoption and implementation. On the
revenue side it includes the elimination of tax exemptions, the rise of excise duties
on tobacco and alcohol and measures to fight tax evasion. Regarding expenditure,
the government will cut public servant allowances, freeze recruitment in 2010 and
will only recruit 1 for every 5 civil servants retiring thereafter. The government has
also set up a contingency reserve and frozen all budgetary appropriations per
ministry by 10% and already adopted nominal cuts in public consumption and
operational expenditure. The programme also outlines a number of structural
reforms aimed at improving the budgetary framework and the efficiency of public
spending, enhancing investment and improving the functioning of labour and product
markets. After the submission of the stability programme, the Greek government
announced further measures concerning public wage, excises on fuel and pension
reform. The Commission asks Greece to spell out the implementation calendar of
these measures within one month. The plans for 2011and 2012 also need to be
detailed in the coming months.
Given the state of the public finances in Greece and the persistent external
imbalances, which result from accumulated competitiveness losses, and in order to
allow for simultaneous discussion by the Council of fiscal policy and structural
reforms, an integrated approach to the enhanced surveillance mechanism is being
adopted.
The Commission recommends to the Council that Greece adopts a comprehensive
structural reform package aimed at increasing the effectiveness of the public
administration, stepping up pension and healthcare reform, improving labour market
functioning and the effectiveness of the wage bargaining system, enhancing product
market functioning and the business environment, and maintaining banking and
financial sector stability. This recommendation is made under Article 121(4) of the
Treaty, ‘with a view to ending the inconsistency with the broad economic policy
guidelines and the risk of jeopardising the proper functioning of the monetary union’.
The recommendations are largely included in the stability programme but require
clarification in some cases.
The Commission has also adopted a recommendation under Article 126.9 of the
Treaty on the excessive deficit procedure (formerly 104.9), whereby Greece is
required to follow the adjustment path outlined in the 2010 stability programme in
terms of nominal deficit, structural deficit and change in debt levels, and detail the
measures to be implemented. The recommendations include measures to be
implemented already in 2010, such as a reduction in the overall public sector wage
bill, including through the replacement of only 1 of 5 retiring civil servants, progress
with healthcare and pension reforms, the set up of a contingency reserve amounting
to the 10% current expenditure, tax and excise duties increases and tax
administration reform. In the medium term, Greece is required to implement further
adjustment measures of a permanent nature, continue with tax administration
reforms and improve the budgetary framework.
Considering that Greece has failed in its duty to report reliable budgetary statistics,
as seen again in October with a significant revision of data for 2008, the Commission
is also initiating infringement proceedings, requesting the government to take all
necessary steps to ensure that the systemic failures and weaknesses identified in
the recent Commission report are corrected. Greece is asked to cooperate with the
Commission so as to promptly agree on an Action Plan to tackle statistical,
institutional and governance deficiencies, including the adoption, by 15 May, of
legislation that makes compulsory to provide public reports on budgetary execution
on a monthly basis, the obligation for social security funds and hospitals to publish
accounts and enhanced control mechanisms and effective personal responsibility in
the statistics and general accounting offices as well as receive the appropriate
resident technical assistance for the compilation of reliable statistics.
Greece is required to submit a first report in mid March 2010, spelling out the
implementation calendar of the measures to achieve the 2010 budgetary targets,
standing also ready to adopt additional measures if needed, and quarterly integrated
reports from mid May 2010 on the implementation of the recommendations, including
on the reforms.
The Commission's integrated recommendations will be discussed at the February
Eurogroup and ECOFIN meetings.
The related documents are available at:
http://ec.europa.eu/economy_finance/articles/sgp/2010_02_03_sgp_en.htm
Comparison of key macroeconomic and budgetary projections
2008 2009 2010 2011 2012 2013
SP Jan 2010 2.0 -1.2 -0.3 1.5 1.9 2.5
Real GDP SP Jan 2010 (alternative) 2.0 -1.2 -0.8 1.0 1.5 2.0
(% change) COM Aut 2009 2.0 -1.1 -0.3 0.7 n.a. n.a.
SP Jan 2009 3.0 1.1 1.6 2.3 n.a. n.a.
SP Jan 2010 4.2 1.2 1.4 1.9 1.8 1.8
HICP inflation
COM Aut 2009 4.2 1.2 1.4 2.1 n.a. n.a.
(%)
SP Jan 2009 4.3 2.6 2.5 2.4 n.a. n.a.
Output gap(1) SP Jan 2010 2.5 -0.5 -2.6 -2.7 -2.1 -1.2
(% of potential COM Aut 2009 2.8 -0.2 -2.1 -2.9 n.a. n.a.
GDP) (2) SP Jan 2009 1.9 0.3 -0.8 -1.0 n.a. n.a.
Net SP Jan 2010 -12.4 -8.8 -6.6 -5.9 -4.9 -4.0
lending/borrowing COM Aut 2009 -12.4 -7.5 -6.8 -6.7 n.a. n.a.
vis-à-vis the rest
of the world SP Jan 2009 -12.8 -11.4 -10.8 -10.0 n.a. n.a.
(% of GDP)
General SP Jan 2010 40.6 39.3 42.4 44.0 45.4 45.7
government COM Aut 2009 40.6 37.3 37.2 37.0 n.a. n.a.
revenue
(% of GDP) SP Jan 2009 40.0 41.0 41.1 41.2 n.a. n.a.
General SP Jan 2010 48.3 52.0 51.1 49.6 48.2 47.7
government COM Aut 2009 48.3 50.0 49.5 49.9 n.a. n.a.
expenditure
(% of GDP) SP Jan 2009 43.7 44.7 44.3 43.8 n.a. n.a.
General SP Jan 2010 -7.7 -12.7 -8.7 -5.6 -2.8 -2.0
government COM Aut 2009 -7.7 -12.7 -12.2 -12.8 n.a. n.a.
balance
(% of GDP) SP Jan 2009 -3.7 -3.7 -3.2 -2.6 n.a. n.a.
SP Jan 2010 -3.2 -7.7 -3.5 -0.2 2.6 3.2
Primary balance
COM Aut 2009 -3.2 -7.7 -6.6 -6.7 n.a. n.a.
(% of GDP)
SP Jan 2009 0.3 0.8 1.2 1.7 n.a. n.a.
SP Jan 2010 -8.8 -12.5 -7.6 -4.4 -1.9 -1.5
Cyclically-
adjusted balance(1) SP Jan 2010 (alternative) -9.1. -12.8. .-7.7 -.4.5 -1.9. -1.5.
(% of GDP) COM Aut 2009 -8.9 -12.6 -11.3 -11.6 n.a. n.a.
SP Jan 2009 -4.5 -3.8 -2.8 -2.2 n.a. n.a.
SP Jan 2010 -8.9 -11.4 -7.9 -4.4 -1.9 -1.5
Structural
SP Jan 2010 (alternative) -9.2 -11.7. -7.8 -4.5 -1.9 -1.5
balance(3)
COM Aut 2009 -8.1 -11.3 -11.3 -11.6 n.a. n.a.
(% of GDP)
SP Jan 2009 -4.5 -4.3 -2.8 -2.2 n.a. n.a.
Government gross SP Jan 2010 99.2 113.4 120.4 120.6 117.7 113.4
debt COM Aut 2009 99.2 112.6 124.9 135.4 n.a. n.a.
(% of GDP) SP Jan 2009 94.6 96.3 96.1 94.7 n.a. n.a.
Notes:
(1) Output gaps and cyclically –adjusted balances according to the programmes as recalculated by Commission services on the basis of
the information in the programmes.
(2) Based on estimated potential growth of 1.6%, 1.5%, 1% and 1.1% respectively in the period 2010-2013.
(3) Cyclically-adjusted balance excluding one-off and other temporary measures. One-off and other temporary measures are 1¼%% of
GDP in 2009 (deficit increasing) and ¼% of GDP in 2010 (deficit-reducing) according to the most recent programme.

Source: Stability programme (SP); Commission services' Autumn 2009 forecasts (COM); Commission services' calculations.