Greece

After the ESM programme ended in August, the Commission activated “enhanced surveillance”, under which Greece committed to completing all key reforms adopted under the programme and to specific actions in particular policy areas. To verify Greece’s progress with its commitments and in line with the enhanced surveillance framework, regular missions are conducted by the European Commission in liaison with the ECB, in which the ESM participates under its Early Warning System. The Commission’s resulting quarterly enhanced surveillance reports also serve as a basis for euro area members’ bi-annual decision to release funds related to the Eurogroup’s June 2018 debt relief measures. For more information on these and related measures, see ‘Greek programme achievements’.

The completion of the third and fourth reviews unlocked €21.7 billion of ESM financing between March and August 2018. During the three-year programme, the ESM disbursed €61.9 billion of the up-to-€86 billion envelope, of which €7 billion was dedicated to arrears clearance and €11.4 billion to the build-up of a cash buffer. Greece’s end-2018 cash resources of €26.8 billion are sufficient to cover financing needs for at least two years. Greece raised €3 billion with a 3-year bond in February, but challenging market conditions did not favour another issuance in 2018. In December 2018, the Public Debt Management Agency announced an up-to-€7 billion 2019 issuance programme. Between January and March 2019, it raised €5 billion through the issuance of a 5-year and a 10-year bond.

In 2018, Greece progressed further in clearing its stock of arrears to the private sector. Domestic resources and programme funds decreased the overall stock by more than €8 billion since the arrears clearance programme started in June 2016. To pay remaining arrears of €1.4 billion in December 2018 and stop creating new ones, Greece has needed to intensify efforts to further modernise its public financial management system.

Greek banks meet capital requirements as of end-2018 and liquidity is much improved, but they still suffer from the highest euro area NPL ratio. Banks have broadly met supervisory targets on NPL reduction to end-2018 but the targets are becoming increasingly challenging. The government improved the efficiency of the out-of-court workout law and the electronic auction platform for asset sales. It also began assessing how it can further support the banks, for example through an asset protection guarantee scheme. The Hellenic Financial Stability Fund (HFSF) developed a strategy for the sale of its stakes in the systemic banks in the following years.

The Hellenic Corporation of Assets and Participations (HCAP) launched governance and operational reforms of state-owned enterprises, and restructured its real estate management entity.

The conclusion of the ESM programme in 2018 and Greece’s ongoing commitments helped to improve confidence, but challenges to sustainable growth remain. Economic activity rose by 1.9%, driven by net exports and consumption which compensated for weak investments. General government debt is still high at 181.1% of GDP. The primary surplus reached 4.4% of GDP, according to Eurostat. This implies a primary surplus of 4.3% in programme terms, outperforming the fiscal target of 3.5% of GDP in 2018, the fourth year of outperformance. While income taxes were robust, lower-than-envisaged public investment also boosted the surplus. The authorities legislated a new set of fiscal measures in 2018, cancelling the accelerated recalibration of pensions in line with the pension reform of 2016 that was scheduled to be implemented in 2019. The resulting higher expenditure reduces the financial scope for growth-enhancing policies. For the future, it will be important that Greece combines its post-programme commitments with policies and public investments that support the economy’s recovery, strengthen market confidence, and sustain growth.