Memorandum of economic and financial policies

Mr. Dominique Strauss-Kahn Athens, May 3, 2010
Managing Director
International Monetary Fund
Washington DC

Dear Mr. Strauss-Kahn:

The attached Memorandum of Economic and Financial Policies (MEFP) outlines the
economic and financial policies that the Greek government and the Bank of Greece,
respectively, will implement during the remainder of 2010 and in the period 2011–2013 to
strengthen market confidence and Greece’s fiscal and financial position during a difficult
transition period toward a more open and competitive economy. The government is fully
committed to the policies stipulated in this document and its attachments, to frame tight
budgets in the coming years with the aim to reduce the fiscal deficit to below 3 percent in
2014 and achieve a downward trajectory in the public debt-GDP ratio beginning in 2013, to
safeguard the stability of the Greek financial system, and to implement structural reforms to
boost competitiveness and the economy’s capacity to produce, save, and export. In this
regard, the government is also fully and equally committed to the policies stipulated in the
Decision and Recommendation issued by the EU Council on February 16, 2010.

The government is strongly determined to lower the fiscal deficit, including by achieving
higher and more equitable tax collections, and constraining spending in the government wage
bill and entitlement outlays, among other items.

In view of these efforts and to signal the commitment to effective macroeconomic policies,
the Greek government requests that the Fund supports this multi-year program under a Stand-
By Arrangement (SBA) for a period of 36 months in an amount equivalent to
SDR26.4 billion (3,212 percent of quota; €30 billion). A parallel request for financial
assistance to euro area countries for a total amount of €80 billion has been sent.

The implementation of the program will be monitored through quantitative performance
criteria and structural benchmarks as described in the attached MEFP and Technical
Memorandum of Understanding (TMU). There will be twelve quarterly reviews of the
program supported under the SBA by the Fund, in coordination with the European
Commission and the ECB, to begin with the first review that is expected to be completed in
the course of the third calendar quarter of 2010, and then every quarter thereafter until the
last quarterly review envisaged to be completed during the second calendar quarter of 2013,
to assess progress in implementing the program and reach understandings on any additional
measures that may be needed to achieve its objectives. Each review will include an in-depth
assessment of program financing in light of the joint financing of this program by the
bilateral funding arrangement of the euro area member states for Greece.
The Greek authorities believe that the policies set forth in the attached memorandum are
adequate to achieve the objectives of the economic program, and stand ready to take any
further measures that may become appropriate for this purpose. The authorities will consult
with the Fund in accordance with its policies on such consultations, and with the European

Commission and the ECB on the adoption of these measures and in advance of revisions to
the policies contained in the MEFP. All information requested by the Fund, the European
Commission, and ECB to assess implementation of the program will be provided.

This letter is copied to Messrs. Juncker, Rehn, and Trichet.

Sincerely,

/s/ /s/
_______________________ _________________________________
George Papaconstantinou George Provopoulos
Minister of Finance Governor of the Bank of Greece

GREECE—MEMORANDUM OF ECONOMIC AND FINANCIAL POLICIES
May 3, 2010

I. RECENT DEVELOPMENTS

1. The economic downturn accelerated coming into 2010. Greek real GDP declined
by 2 percent in 2009 and indicators suggest that activity will weaken further in 2010.
Following the Greek elections in October, the realization that the fiscal and public debt
outturn for 2008 and 2009 were significantly worse than had been reported by the previous
government caused confidence to drop, financing costs to increase, and growth and
employment to suffer.

2. The crisis exposed the weak fiscal position. The deficit of 5.1 percent of GDP in
2007, at the top of the cycle, shows that Greece entered the downturn with a large underlying
public deficit. With weak revenue policies and tax administration, especially leading up to
the 2009 elections and aggravated by the recession, revenues declined notably. Spending,
meanwhile, increased significantly, especially on wages and entitlements, reflecting weak
spending discipline and monitoring and control, which also led to new arrears. The deficit
jumped to an estimated 13.6 percent of GDP while the public debt rose to over 115 percent of
GDP in 2009. The monitoring and control deficiencies delayed the implementation of
corrective fiscal policies.

3. The financial system has been adversely affected. With the deteriorating fiscal
results came downgrades of government bonds by rating agencies, and investors started
backing out of Greek bonds, driving up their yields. Furthermore, it is clear that the deep
macroeconomic and structural problems combined with unavoidable strong fiscal adjustment
over the medium term are likely to weigh on activity for some time. This combination of
factors affects negatively the banking system. Impaired loans are rising while borrowing
costs in the interbank and wholesale markets have increased, putting pressure on bank
profitability.

4. Despite the recession, the external deficit is declining only gradually. Inflation
and domestic costs have increased well above those of Greece’s euro partners over the last
decade and Greece has lost competitiveness. As a result, the external current account deficit
at end 2009 was still over 11 percent of GDP, and the net international investment position is
over negative 83 percent of GDP. The external interest bill on the foreign debt has increased
to over 5 percent of GDP, so it will take a surplus in trade of goods and services to return the
current account to a more sustainable position. This will require a strengthening of economic
policies and competitiveness to lay the foundations for a growth model that relies more on
investment and exports.

4

II. KEY OBJECTIVES AND THE OUTLOOK

5. The main objectives of the program are to correct fiscal and external imbalances
and restore confidence. Without regaining confidence in the sustainability of fiscal and
economic developments, the cost of funding the economy is bound to stay high if not
increase further. The fiscal and the external imbalances need to be corrected. Facing these
two tasks at the same time is challenging, requiring a major reorientation in the economy.
Growth is unlikely to be buoyant as the initial corrective fiscal measures are implemented,
but with financial sector policies to preserve the soundness of the banking sector and strong
medium-term fiscal and structural policies, the economy will emerge from this experience in
better shape than before with higher growth and employment.

6. The government foresees an extended adjustment period:

 Real GDP growth is set to contract significantly in 2010–2011, but should gradually
recover thereafter. The economic program assumes negative growth of 4 percent in
2010 and 2½ percent in 2011. While fiscal consolidation is bound to weigh on
economic activity at first, it is expected that confidence effects from the front-loaded
fiscal measures and the strong medium-term economic program in combination with
comprehensive structural reforms will create the conditions for a return to growth
from 2012 onward.

 Inflation needs to be reduced significantly below the euro area average for Greece to
regain swiftly price competitiveness. Domestic demand tightening, both through
fiscal adjustment and efforts to moderate wages and pensions, together with cost-
cutting measures in the economy, will be essential to bring inflation down in a
meaningful way. In this regard, addressing oligopolistic structures to reduce high
markups in some sectors will also be important.

 The external deficit is projected to decline gradually over the medium term as
domestic demand and inflation moderate and the economy responds to structural
reforms to improve the supply of exports and reduces the dependence on imports.
This process will naturally take several years, while the interest costs on the
substantial external debt will pressure the current account for some time.

III. ECONOMIC POLICIES

7. To achieve the program objectives, all available fiscal, financial, and structural
policies will be used. The economy needs a strong and sustained adjustment program to
correct fiscal imbalances and place debt on a downward path in the medium term, maintain
banking sector stability, and restore competitiveness:

 Fiscal adjustment will have to be the cornerstone of the program. The
government is committed to put in place durable adjustment measures, on top of those

already announced in March this year, of 11 percent of GDP in cumulative terms
through 2013, with additional remedial measures in 2014 to reduce the deficit to well
below 3 percent of GDP. This large adjustment is needed to put the debt-GDP ratio
on a downward trajectory from 2013 onward, which will be sustained after the
program by keeping primary balances in a sizeable surplus (at least 5 percent of GDP)
up to 2020. To sustain fiscal consolidation over the medium term, the government
also is committed to strengthening the fiscal policy framework and fiscal institutions.

 Incomes and social security policies need to buttress the fiscal adjustment effort
and restoration of competitiveness. Realigning incomes to sustainable levels is
necessary to assist fiscal correction, support a reduction in inflation well below the
euro area average, and improve price and cost competitiveness on a lasting basis.
Social security programs need to be strengthened to confront underlying structural
imbalances that result from the ageing of the population, where growth in entitlement
costs for Greece is projected to be among the highest in the European Union with
current policies. As the largest annual overruns in the budget consistently come from
the social security funds, reforms cannot be postponed any longer to safeguard the
viability of the system.

 Financial sector policies need to maintain stability. While currently capital buffers
in the banking system are reassuring, bank supervisors will need to monitor closely
liquidity and nonperforming loans at individual banks. The Bank of Greece and the
government will further strengthen and clarify the key elements of Greece’s
supervisory and financial crisis framework to assist the banking system through this
period of lower growth.

 Structural reforms that boost the economy’s capacity to produce, save, and
export will be critical for the medium-term recovery. Greece’s openness is lagging
euro-area peers. The government is determined to implement an ambitious program
of reforms to modernize the public sector and render product and labor markets more
efficient and flexible, create a more open and accessible environment for domestic
and foreign investors, and reduce the state’s direct participation in domestic
industries.

8. The government is committed to fairness in the distribution of the adjustment
burden. Our resolve to protect the most vulnerable in society from the effects of the
economic downturn was taken into account in the design of the adjustment policies. In
consolidating government finances, larger contributions will be raised from those who have
traditionally not carried their fair share in the tax burden. With regard to the reduction in
public wages and in pensions, the minimum earners have been protected:

 Pension reductions: The elimination of the 13th and 14th pensions is compensated,
for those receiving less than €2500 a month, by introducing a new flat bonus of €800
a year. The benefit reduction is weighted toward the higher pension earners.

 Wage bill reductions. The 13th and the 14th wage payments will be eliminated for all
employees. To protect the lower income segment, here too, for those receiving less
than €3000 a month, a flat bonus payment of €1000 a year per employee will be
introduced, which will be financed through cutting salary allowances for higher
income segments.

Further, minimum pensions and family support instruments will not be cut, and the most
vulnerable will be compensated for the possible adverse impact of policies. To explain and
forge consensus on policies to overcome the crisis, the government will invite representatives
of businesses and labor to sign a social pact for the duration of the program. The spirit of the
above considerations is to maintain strong social cohesion, fight poverty, and maintain
employment.

A. Fiscal Policies

9. The Greek government recognizes the need to implement a frontloaded
multiyear adjustment effort given Greece’s very high and still growing debt ratio and
large fiscal deficit. All the necessary measures to strengthen market confidence and
convince creditors that Greece will regain control over the debt dynamics will be taken. A
difficulty is that policies to restore external price competitiveness, which in a monetary union
have to rely on reductions in domestic costs and prices, will initially weigh on economic
activity, government revenue and debt dynamics. Therefore, the effort has to take place in a
period of contracting economic activity, naturally slowing revenues, and cyclically high
expenditure. However, it is imperative to place fiscal policies, and the economy, on a sound
path for future growth. It is clear that the public sector has become too large and costly and
has to become smaller, more efficient and agile, and oriented to providing better services to
citizens.

10. The fiscal strategy is anchored in placing the debt-GDP ratio on a declining path
from 2013 onward and reducing the general government deficit to well below 3 percent
of GDP by 2014. To avoid reform fatigue and boost market confidence, the government’s
strategy is strongly to frontload the fiscal adjustment. All the fiscal measures for the
remainder of 2010–2012 have been identified, and most of them will be adopted in the
coming weeks. Fiscal measures for 2013 have also been identified with some residual gap
remaining that will need to be addressed in coming reviews.

11. A very strong start has already been made leading to a significant reduction in
the 2010 first quarter deficit. For the remainder of 2010 additional measures will be
implemented beyond those stipulated in the EU Council Decision and Recommendation
of 16 February 2010 and those announced in March 2010 (Table 1). The three biggest

upfront measures are an immediate cut in the public sector wage bill, and in pension outlays,
and further increases in the VAT and selected excises (together with other steps yielding
2½ percent of GDP in further savings already in 2010). This will assure that the deficit,
notwithstanding the recession, drops from an estimated 13.6 percent of GDP in 2009 to
8.1 percent of GDP in 2010. These very large upfront efforts show the government’s resolve
in responding to the recent deterioration in market sentiment and the large fiscal challenges,
and will help overcome the adverse developments on revenue and support payments such as
higher unemployment outlays. These large measures come on top of those already
undertaken, which include the first installment of lowering the government’s wage bill and
selected social security benefits (while safeguarding the minima), the substantial reductions
in operating expenditures in all ministries, and significant permanent revenue measures and
special taxes on highly profitable enterprises and large properties, and on luxury goods. Thus,
the government’s resolve is unwavering and every effort will be made to distribute the
burden equitably.

12. For 2011 and beyond, further revenue and expenditure measures have been
identified to secure fiscal targets. Together with the full-year effect of the advance
measures taken in mid-2010, these will cover the adjustment needs for 2011 projected at
4 percent of GDP. Adjustment measures in 2012 will continue at a pace of 2½ percent of
GDP and in 2013 they are projected to be 2 percent of GDP. Given the expected weakness in
GDP, the headline deficit in percent of GDP is expected to drop to 7½ percent in 2011, with
more significant headline declines in subsequent years when economic growth resumes.

 Expenditures will be cut by the equivalent of around 7 percent of GDP through
2013. Since adoption of the euro, Greece has increased its noninterest expenditures by
8 percentage points of GDP, including with public wages, consumption, and social
transfers imposing an overly large burden on the state. This needs to be reversed. As a
result, wage and entitlement program costs need to be curtailed as they represent the
bulk of the primary budget expenditures, and thereafter wages and pensions will be
subsequently frozen in nominal terms for the duration of the program. The
government has also planned other reductions in government spending, including by
replacing over time only 20 percent of retiring employees, and by consolidating
municipalities and local councils. It is essential that the burden of the adjustment on
the expenditure side be distributed over multiple programs, so even investment
spending will need to be rationalized and shifted to more intensive and efficient use
of EU structural and cohesion funds, as feasible. Independent reviews will be
launched, conducted by internationally renowned experts, of the public administration
and of existing social programs to help identify actions to rationalize the organization
of public administration and improve targeting of social programs so that resources
are channeled to the most vulnerable.

 Revenues will be increased by the equivalent of around 4 percent of GDP
through 2013. Revenue from higher income segments of society will include a boost

in (presumptive) taxation on liberal professions, an increase in luxury goods taxation,
and (temporary) surcharges on highly profitable entities and high valued properties as
well as other measures to combat tax evasion included in the recently adopted tax
reform legislation. Other revenue increases will include broadening the VAT base,
increasing rates and raising excise taxes where Greece is below the euro area average
and collection efficiency is low. Green taxes and “health” taxes (such as on
consumption of alcohol and tobacco) will also play a part in the revenue raising
effort.

13. Besides these direct fiscal steps for the budget, the government also has initiated
a series of important structural fiscal reforms. These will boost sustainability by helping
to strengthen control over revenues and expenditures:

 Pension reform. The current pension system is unsustainable and will become
insolvent if responsible measures are not taken to place it on a sound footing. The
government has initiated a reform which should be adopted before end-June 2010.
The National Actuarial Authority will produce a report to verify that the parameters
of the new system ensure long-term actuarial balance. The existing pension funds will
be merged in three funds. The reform will introduce a new system to strengthen the
link between contributions and benefits, with uniform rules that will apply pro-rata to
all current and future workers. The normal retirement age will be set to 65 years,
increasing in line with life expectancy. Benefits will be indexed to prices. The reform
will also restrict early retirement, including for those insured before 1993, and reduce
the list of heavy and arduous professions. The new system will also include a means-
tested social pension for all citizens above the normal retirement age so that an
important safety net is provided, consistent with fiscal sustainability.

 Health sector reform. The government will implement double-entry accrual
accounting in hospitals, the regular publication of audited accounts, and
improvements in pricing and costing mechanisms. The government also plans to
separate health funds from administration of pensions, merge the funds to simplify
the overly fragmented system, and bring all health-related activities under one
ministry.

 Tax reform. The government has obtained passage of a tax bill that includes
important components to make the tax system more efficient and equitable. The
income tax system has become more progressive; exemptions and deductions have
been reduced to broaden the tax base; and a number of reforms have been introduced
to fight tax evasion, including the tightening of obligations to issue receipts for VAT
and to document living expenses, and the introduction of presumptive taxation. The
government will further review the tax system to simplify it and increase efficiencies
as necessary.

 Tax administration. Tax administration improvements are being implemented for
which technical assistance has already been received from the IMF. In the short run,
the government’s strategy will focus on safeguarding revenue from the largest
taxpayers, stronger enforcement and auditing of high-wealth individuals and self-
employed (where risk of evasion is largest) and prosecuting the worst offenders,
strengthening enforcement of VAT filing and payment, and collecting on the large
stock of tax arrears. For the medium-term, the government will design a program of
structural reforms in key tax compliance and administration areas, including:
developing and maintaining a comprehensive compliance risk management
framework (notably preparing a compliance strategy for 2012); developing taxpayer
service capacity to support compliance improvement efforts; substantially improving
enforcement operations, particularly in audit, using risk-based approaches; and
building headquarters strategic management and planning capabilities in tax and
customs administration.

 Public financial management and fiscal framework. Technical assistance from the
IMF and the European Commission on public financial management and longer-term
budgeting reforms will be re-prioritized to address the short-term challenges we are
facing. In this context, the General Accounting Office (GAO) will be responsible for
monitoring and reporting of general government data; the government will introduce
standardized commitment control procedures for all public entities to prevent the re-
emergence of arrears; ensure that all budgets are prepared within a medium-term
fiscal strategy for the general government and presented before the start of the fiscal
year; introduce top-down budgeting with expenditure ceilings, a sufficient
contingency reserve, and a medium-term expenditure framework for the State budget;
require a supplementary budget for any overruns above this contingency provision;
and amend the 1995 budget management law to give effect to the above. The
government will continue to work with the technical assistance teams of the IMF and
the European Commission to implement the recommendations already received, and
to make further improvements over the course of the program, including the creation
of an independent fiscal agency attached to parliament.

 Debt management framework. The government will update its debt management
strategy and the tools to ensure that risk is adequately managed. To enhance market
confidence and communication, the government plans to review the operational and
risk management framework for debt management to ensure the transparency and
predictability of our actions. The government has already sought technical assistance
in this area from the IMF.

 Fiscal and other public sector reporting of information, including statistical
aspects. Upon taking office in October 2009, the new government immediately
disclosed that the fiscal deficit for 2008 was under-reported and needed to be revised.
Working closely with Eurostat on fiscal data processing and reporting, the

government has already taken remedial measures to prevent the reoccurrence of such
problems and has designed jointly with the European Commission an action plan to
address outstanding statistical issues. Among these, full independence has been
granted to the Greek Statistical Office and sufficient resources will be devoted in the
coming years to improve statistical systems and seek appropriate resident technical
assistance to ensure rapid progress. To that end, the measures in the joint Greek
government and European Commission Statistical Action Plan will be fully
implemented. Going forward, we feel confident that we are in a position to provide
accurate fiscal data to the Fund and our European partners Further, since January
2010, timely monthly central government budget reports on a cash basis have been
published. The GAO will also start publishing monthly data on expenditures pending
payment, including arrears, from July 2010. Efforts will also be intensified to
improve the collection and processing of general government data compiled
according to the European System of National and Regional Accounts (ESA) required
under the existing EU legal framework, and compile comprehensive data on
employment in the general government. Detailed information will be furnished to the
European Commission, the ECB and the Fund on the operating accounts and balance
sheets of key public enterprises.

14. The program will be closely monitored and measures will be taken as necessary.
There are risks to the program from lower revenue, higher social transfers, further downward
revisions of growth, additional fiscal liabilities from the public and financial sector, and
higher interest costs. However, these can be managed and the government stands ready to
take appropriate measures to preserve the program objectives, including by reducing
discretionary spending, as necessary. At the same time, there is some upside potential. Our
2010–2011 projections include cautious estimates of the measures taken, positive confidence
effects could boost GDP growth and reduce market risk premia, and our revenue
administration efforts could start to yield more revenue gains than currently assumed in the
program. Should confidence rebound and the market support Greece earlier than expected, or
the supply response from reforms comes in more vigorously, these benefits will be saved and
the intended deficit will be brought forward to achieve a speedier return to fiscal
sustainability.

B. Financial Sector Policies

15. Despite a strong solvency position, at present, the Greek banking system is
facing challenges. The system’s equity base was substantially strengthened in 2009, jumping
from €24 to €33 billion, including through capital injections from the government, for
€3.8 billion, capital increases from the owners, and retained earnings. All banks are in
compliance with the capital adequacy requirement of 8 percent, and the average capital
adequacy ratio rose to 11.7 percent at end 2009. However, the fiscal crisis and a weakening
economic environment resulted in a reversal in credit growth and an increase in non-

performing loans, which reached 7.7 percent at end-2009 while profitability declined and
might become negative this year.

16. The immediate challenge for the banks is to manage carefully the current tight
liquidity conditions. In the general context of the turbulence affecting the debt markets for
the Greek government, the Greek banks have lost wholesale market access to fund their
operations since end-2009. Maturing interbank liabilities have not been renewed, or only at
high costs, and some moderate deposit outflows were noted during the first months of 2010,
which has put pressure on the liquidity position of many Greek banks. As a result, the banks
have increasingly relied on Eurosystem credit operations. To assist the banks in these
difficult times the government has extended the banking assistance package of early 2009
(€28billion of which €11 billion had been used by end-2009)), to provide a substantial
€17 billion in additional liquidity and the government is implementing another extension of
this support facility subject to approval by decision of the European Commission. Within the
existing Euro system framework, national central banks may give support to temporarily
illiquid, but solvent institutions. In the event that such support is given by the Bank of
Greece, it will be fully guaranteed by the Greek state in a manner that is consistent with
relevant ECB and EU requirements.

17. The government and the Bank of Greece are also putting in place a new safety
net to preserve the sound level of bank equity, and thus improve conditions to support
the real economy. Anticipating that banks profits may decline further, possibly impacting
their equity position, the government will establish (by June 30, 2010, as a structural
benchmark), through specific legislation and in consultation with the IMF, the European
Commission, and the ECB, a fully independent Financial Stability Fund (FSF). The FSF’s
key decision makers will be persons of recognized standing in financial matters, appointed by
the government and the Governor of the Bank of Greece (who will make most of the
appointments).

18. The primary purpose of the FSF is to preserve the financial sector’s soundness
and thus its capacity to support the Greek economy, by providing equity support to
banks as needed. Whenever supervisory assessments conclude that a bank’s capital buffer
might fall below adequate levels, the shareholders will be required to immediately bring
additional capital or take bridging capital support from the FSF. If banks are then not able to
expeditiously raise additional capital on their own and repay the FSF, a restructuring process
will take place under the lead of the FSF, in line with EU competition and state aid
requirements.

19. Other elements of the safety net for the financial sector will also be strengthened.
Corporate debt restructuring legislation, and the current proposal for a personal debt
restructuring law, will be in line with international best practices, to ensure that credit
discipline is maintained, that creditor and consumer rights are protected, and that relevant
information concerning borrowers’ track record is preserved.

20. The Bank of Greece will implement intensified supervision and increase the
resources dedicated to banking supervision. This will include an increase in the frequency
and speed of data reporting, and the further development of a comprehensive framework for
regularly stress-testing financial institutions. Staffing will be increased both for on-site
inspections and off-site review, also taking into account the new responsibilities of the Bank
of Greece with respect to insurance supervision. Additional flexibility will be introduced in
the management of human resources, and all Bank of Greece staff will be granted strong
legal protection for actions performed in good faith.

21. Close coordination will be maintained with home and host country supervisors
within the EU framework for cross-border bank supervision. In this context, the
authorities are fully aware of the significant presence of Greek banks in South Eastern
European (SEE) countries; a number of MoUs with the host supervisory authorities (both EU
and non-EU) have been signed. Communication with regulators in SEE regarding risk
assessments and liquidity contingency plans are also intensifying.

C. Structural Policies

22. Structural policies are strengthened in order to boost competitiveness and
emerge from the crisis quickly. These will enhance the flexibility and productive capacity
of the economy, ensure that wage and price developments restore and then sustain
international competitiveness, and progressively alter the economy’s structure towards a
more investment and export-led growth model. The Greek government will work closely
with the European Commission and the ECB to pursue reforms as specified in the MoU
attached to this MEFP. In particular:

 Modernizing public administration. Fragmented employment practices will be
reformed by reorganizing recruitment procedures and finalizing the single payment
authority for wages. A simplified remuneration system will be introduced, in a cost-
saving manner that will cover basic wages and all allowances which apply to all
public sector employees. Procurement practices will be strengthened to generate
efficiency gains and ensure transparency. The health care system, where there have
been major expenditure overruns, will be overhauled through reforms in management,
accounting and financing systems. A reorganization of sub-central government will
be implemented to reduce the number of local administrations and elected/appointed
officials. The government will collaborate with the EC to launch an independent
external functional review of public administration at the central government level.
These reforms will help prioritize government activities and, strengthen the fight
against waste and corruption throughout the public administration.

 Strengthening labor markets and income policies. In line with the lowering of
public sector wages, private sector wages need to become more flexible to allow cost
moderation for an extended period of time. Following consultation with social

partners and within the frame of EU law, the government will reform the legal
framework for wage bargaining in the private sector, including by eliminating
asymmetry in arbitration. The government will adopt legislation for minimum entry
level wages in order to promote employment creation for groups at risk such as the
young and long-term unemployed. In parallel, the government will implement the
new control system for undeclared work and modernize labor market institutions.
Employment protection legislation will be revised, including provisions to extend
probationary periods, recalibrate rules governing collective dismissals, and facilitate
greater use of part-time work. The scope for improvements in the targeting of social
expenditures will be revised in order to enhance the social safety net for the most
vulnerable.

 Improving the business environment and bolstering competitive markets. The
government will shortly adopt legislation establishing one-stop shops for starting new
enterprises to cut procedures, costs and delays. Legislation will be introduced to cut
licensing and other costs for industry. The government will fully implement key steps
of the EU Services Directive in 2010, especially in priority areas such as tourism,
education and retail. Over the course of next year, restricted professions will be
opened by reducing fixed tariffs and other restrictions in the legal, pharmacy, notary,
engineering, architect, road haulage, and auditing professions. The role of the
Hellenic Competition Commission (HCC) will also be strengthened. Network
industries will be progressively liberalized, especially in the transport and energy
sector while strengthening regulators in these sectors in line with EU policies.

 Managing and divesting state enterprises. These need to be subject to greater
transparency to increase efficiency and reduce losses. As a first step, 2009 financial
statements audited by chartered accountants of the ten largest loss makers will be
published on the internet. A time table and action plan for improving the financial
performance of main loss-makers, most notably in the railway and public
transportation companies will be produced. This action plan will include concrete
steps to reduce costs, including by streamlining the networks serviced and increasing
tariffs. The government will review the role for divesting state assets, including of
land owned by public enterprises or the government. The government will further
review the scope for improving corporate governance, and enhancing oversight of
state-ownership.

 Improving the absorption of EU structural and cohesion funds. The government
will work closely with the EC to raise the absorption rate of Structural and Cohesion
Funds, including by establishing targets for payment claims based on Management
Information System (MIS) data every six months to be measured by certified data and
a system of "fast track project production” which includes deadlines for each step of
the approval and implementation of projects. A minimum of ten major projects per
annum will be submitted. Within the overall public investment envelope agreed in

this program, a central account will be established to be used for budgetary
appropriations for the national co-financing of Structural and Cohesion Funds. A
specific Task Force will be established with the Commission to ensure the faster
delivery of high-quality projects.

IV. PROGRAM FINANCING

23. We anticipate covering the program’s financing requirements with financial
support from euro-area member states and the IMF while strengthening access to the
private capital markets. Notwithstanding the significant fiscal adjustment, we project a
public financing gap of around €110 billion, for the program period, which we expect to
cover through matching bilateral lending support from euro area member states (€80 billion)
and through IMF support (€30 billion). Greece will draw on these resources in parallel
throughout the program period, drawing on the bilateral and IMF financing in a ratio of 8 to 3
in each disbursement (measured at the program exchange rate). We are confident that
resolute implementation of our economic program will help our economy recover and bolster
market sentiment. If fiscal consolidation proceeds faster than expected or if market
conditions improve significantly during the program period, we would refrain pari passu
from drawing on the full bilateral and IMF support.

V. PROGRAM MONITORING

24. Progress in the implementation of the policies under this program will be monitored
through quarterly (and continuous) quantitative performance criteria (PCs) and indicative
targets, structural benchmarks, program reviews and consultation clauses. These are detailed
in Tables 2 and 3. The attached TMU contains definitions. Quantitative targets up to
December 2010 are PCs. Targets for 2011-2013 are indicative and for 2011 will be converted
into PCs at the time of the second review before end-2010. A joint EC/ECB MoU specifies,
notably, the structural policies recommended in the MEFP, and sets a precise time frame for
their implementation.

In the context of the arrangement, the Bank of Greece will undergo a safeguards assessment
in accordance with the IMF safeguards policy. In this regard, and to facilitate a timely
completion of the assessment, the authorities have provided the information requested for the
assessment to commence, and have also authorized the external auditors to provide
information to and hold discussions with the staff of the IMF. As a related matter, and given
that financing from the IMF will be used to provide direct budget support, a memorandum of
understanding between the government and the Bank of Greece will establish a clear
framework on the modalities for the repayment of IMF financing and the servicing of interest
payments and other charges. As part of these arrangements, Fund disbursements will be
deposited into the government’s single treasury account at the Bank of Greece pending their
use.

Table 1: Greece: Fiscal Measures included in the Program 1/
(in millions of Euros)

2010 2011 2012 2013 Cum % GDP

I. Revenue measures

VAT rates increase by 10 percent (10% to 11%; 21% to 23%) 800 1,000 0 0 1,800 0.8
Broadening VAT base 0 1,000 500 0 1,500 0.7
Excise tax on fuel 200 250 0 0 450 0.2
Excise tax on cigarettes 200 300 0 0 500 0.2
Excise tax on alcoholic beverages 50 50 0 0 100 0.0
Excise goods on non-alcoholic beverages 0 0 300 0 300 0.1
Excise tax on luxury goods 0 100 0 0 100 0.0
Green taxes 0 300 0 0 300 0.1
Gaming royalties 0 200 400 0 600 0.3
Gaming licenses 0 500 225 -725 0 0.0
Special levy on highly profitable firms 0 600 0 0 600 0.3
Presumptive taxation of professionals 0 400 100 0 500 0.2
Taxation of wage in kind (cars) 0 150 0 0 150 0.1
Book specification of incomes 0 50 0 0 50 0.0
Increase legal value real estate 0 400 200 100 700 0.3
Amnesty land use violations 0 500 0 0 500 0.2
Taxation of unauthorized establishments 0 800 0 0 800 0.3

II. Expenditure measures

Reduce wage bill by cutting bonuses/allowances 1,100 400 0 0 1,500 0.7
Workforce reduction beyond 5:1 (add. 20,000) 0 0 600 500 1,100 0.5
Savings from introduction of unified public sector wages 0 100 0 0 100 0.0
Eliminate pension bonuses (except for minimum pensions) 1,500 500 0 0 2,000 0.9
Additional pension reduction above a certain threshold 350 150 0 0 500 0.2
Nominal pension freeze 0 100 250 200 550 0.2
Means test unemployment benefit 0 0 500 0 500 0.2
Cancel second installment of solidarity allowance 400 0 0 0 400 0.2
Cut intermediate consumption 700 300 0 0 1,000 0.4
Kalikrates 0 500 500 500 1,500 0.7
Cut in transfers to public enterprises 0 0 1,500 0 1,500 0.7
Cut domestically funded investment spending 500 500 500 0 1,500 0.7
Yet to be quantified yield from structural reform initiatives 0 0 0 4,200 4,200 1.8

Total annual measures 5,800 9,150 5,575 4,775 25,300 11.0
Revenue measures 1,250 6,600 1,725 -625 8,950 3.9
Expenditure measures 4,550 2,550 3,850 5,400 16,350 7.1

Total measures (in percent of GDP) 2.5 4.1 2.4 2.0 11.0
Revenue measures 0.5 3.0 0.8 -0.3 3.9
Expenditure measures 2.0 1.1 1.7 2.3 7.1

Memorandum item:
Nominal GDP 231 224 228 235 229

Source: Greece authorities, and IMF staff estimates.
1/ Yield of measures relative to the previous year.

Table 2. Greece: Quantitative Performance Criteria (in billion of Euros, unless otherwise indicated)

Performance Criteria Indicative Targets
Jun-10 Sep-10 Dec-10 Jun-10 Sep-10 Dec-10 Dec-11 Dec-12 Dec-13
Progr. 1/ Progr. 1/ Progr. 1/ Progr. 1/ Progr. 1/ Progr. 1/ Progr. 2/ Progr. 3/ Progr. 4/

1. Floor on the modified general government primary cash balance -5.0 -4.0 -5.7 .. .. .. -2.1 2.4 7.4
2. Ceiling on State Budget primary spending 34 50 67 .. .. .. 67 68 69

3. Ceiling on the accumulation of new domestic arrears by the general government 5/ .. .. .. 0 0 0 0 0 0
4. Ceiling on the overall stock of central government debt 342 342 342 .. .. .. 365 .. ..
5. Ceiling on the new guarantees granted by the central government 2.0 2.0 2.0 .. .. .. 1.0 0.0 0.0
6. Ceiling on the accumulation of new external payments arrears on external debt
contracted or guaranteed by general government 5/ 0 0 0 .. .. .. 0 0 0

1/ Cumulatively from January 1, 2010 (unless otherwise indicated).
4/Cumulatively from January 1, 2013 (unless otherwise indicated).
5/ Applies on a continuous basis from April [30] onward.

Greece. Table 3. Greece: Structural Conditionality for 2010 1/
Measures Date Macrocritical relevance

Prior actions
1. Reduce public wage bill by cutting bonuses/allowances; and pension bonuses (except minimum pensions). Improves fiscal sustainability; has signaling effect for private sector
wage setting.
2. Increase standard VAT rate from 21 to 23 percent and reduced rate from 10 to 11 percent and excise tax rates on Improves fiscal sustainability.
alcohol, tobacco, and fuel with a yield of at least €1.25 billion in the remainder of 2010.

3. Appoint staff team and leader in GAO responsible for general government in-year cash reporting. Establishes in-year oversight responsibilities of general
government fiscal policy.
Structural benchmarks End-June 2010
1. Establish the independent Financial Stability Fund (FSF) to preserve the financial sector's soundness and thus its Enhances financial stability.
capacity to support the Greek economy by providing equity support to banks as needed.

2. Adopt and start to implement a reorganization of sub-central government with the aim to reduce the number of local Improves fiscal sustainability.
administrations and elected/appointed officials (Kalikrates).

3. Submit to parliament amendments to Law 2362/1995 to (i) require the MoF to present a three-year fiscal and budget Improves credibility of the budget and fiscal consolidation program.
strategy, (ii) introduce top-down budgeting with expenditure ceilings for the State budget and multi-year expenditure
estimates by line ministry, (iii) introduce standard contingency margins, (iv) require a supplementary budget for any
overspending above the contingency, (v) and introduce commitment controls. The amended law should be immediately
effective, including in the context of the 2011 budget.

4. The National Actuarial Authority to produce a report to assess whether the parameters of the new system significantly Reduces budgetary costs of ageing and improves long-term fiscal
strengthen long-term actuarial balance. sustainability. Increases labor force participation.

End-September 2010

17
1. Adopt a comprehensive pension reform that reduces the projected increase in public spending on pensions over the Improves fiscal sustainability.
period 2010-60 to 2½ percent of GDP.

2. Establish a commitment register in all line ministries and public law entities. Begin publishing monthly data on general Reduces budget overruns.
government in-year fiscal developments (including arrears).

3. Publish 2009 financial statements of the ten largest loss-making public enterprises, audited by chartered accountants, Increases transparency of fiscal risks to fiscal sustainability.
on the official website of the Ministry of Finance.

4. Put in place an effective project management arrangement (including tight MOF oversight and five specialist Achieves revenue targets and enhances sustainability of the
taskforces) to implement the anti-evasion plan to restore tax discipline through: strengthened collection enforcement and consolidation by increasing burden sharing of the adjustment.
recovery of tax arrears—coordinated with the social security funds—of the largest debtors; a reorganized large taxpayer
unit focused on the compliance of the largest revenue contributors; a strong audit program to defeat pervasive evasion
by high-wealth individuals and high income self-employed, including prosecution of the worst offenders; and a
strengthened filing and payment control program.

End-December 2010
1. Publish a detailed report by the ministry of finance in cooperation with the single payment authority on the structure Reduces wage escalation. Improves transparency of public sector
and levels of compensation and the volume and dynamics of employment in the general government. employment.

2. Adopt new Regulation of Statistical Obligations for the agencies participating in the Greek Statistical System. Enhance confidence in fiscal reporting and support the formulation
of fiscal policy.
3. Prepare a privatization plan for the divestment of state assets and enterprises with the aim to raise at least 1 billion Reduces state intervention in the real economy; improves market
euro a year during the period 2011-2013. efficiency; and cuts fiscal contingencies.
1/ Structural benchmarks for 2011 will be determined in the reviews for end-September and end-December 2010.

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GREECE: TECHNICAL MEMORANDUM OF UNDERSTANDING
May 3, 2010

1. This Technical Memorandum of Understanding (TMU) sets out the understandings
regarding the definitions of the indicators subject to quantitative targets (performance criteria
and indicative targets), specified in the Letter of Intent (LOI). It also describes the methods to
be used in assessing the program performance and the information requirements to ensure
adequate monitoring of the targets. We will consult with the Fund, European Commission
and ECB before modifying measures contained in this letter, or adopting new measures that
would deviate from the goals of the program, and provide the European Commission, ECB
and the Fund with the necessary information for program monitoring.

2. For program purposes, all foreign currency-related assets, liabilities, and flows will be
evaluated at “program exchange rates” as defined below, with the exception of the items
affecting government fiscal balances, which will be measured at current exchange rates. The
program exchange rates are those that prevailed on April 30, 2010. In particular, the
exchange rates for the purposes of the program are set €1 = 1.3315 U.S. dollar, €1 = 125.81
Japanese yen, €1.135 = 1 SDR.

General Government

3. Definition: For the purposes of the program, the general government includes:

 The entities covered under the State Budget as defined in Chapter 2 of the Law
2362/1995 regarding “Public Accounting, Auditing of Government Expenditures and
Other Regulations.”

 Local authorities comprising municipalities, prefectures, and regional governments
including their basic and special budgets, including all agencies and institutions
attached thereto, which are classified as part of local authorities according to ESA 95.

 Social security funds comprising all funds that are established as social security funds
in the registry of the National Statistical Service.

 This definition of general government also includes any new funds, or other special
budgetary and extra budgetary programs that may be created during the program
period to carry out operations of a fiscal nature as defined in the IMF’s Manual on
Government Finance Statistics 2001. The authorities will inform IMF, European
Commission and ECB staff of the creation of any such new funds or programs
immediately.

4. Supporting material: The Ministry of Finance (MoF) will provide to the European
Commission, ECB and IMF detailed information on monthly revenues and expenditures,
domestic and foreign debt redemptions, new domestic and foreign debt issuance, change in

19

the domestic and foreign cash balances of the central government at the central bank of
Greece, all other sources of financing including capital transactions, and arrears of the
general government. Data will be provided within 30 days. The Bank of Greece will provide
detailed monthly data on assets and liabilities of local authorities and social security funds in
line with monetary survey data.

I. QUANTITATIVE PERFORMANCE CRITERIA, INDICATIVE CEILINGS, AND CONTINUOUS
PERFORMANCE CRITERIA: DEFINITIONS AND REPORTING STANDARDS

A. Floor of the Modified General Government Primary Cash Balance
(Performance Criterion)

5. Definition: The modified general government primary cash balance (MGGPCB) is
defined as the modified general government cash balance (MGGCB) minus interest
payments by the state budget. The MGGCB is defined as the sum of the cash balances of the
ordinary state budget, the cash balance of the investment state budget, the change in net
financial assets of local authorities and the change in net financial assets of social security
funds. Privatization receipts will be excluded from cash receipts. Net lending operations by
the state budget will be recorded as cash expenditures.

 The cash balance of the ordinary state budget. The cash balance of the ordinary
state budget will be measured from above the line, based on ordinary budget revenues
(recurrent revenue plus non-recurrent revenue minus tax refunds) minus ordinary
budget expenditures (ordinary budget expenditures will exclude amortization
payments and capital transfers to social security funds by bonds but include salaries
and pensions; grants to social security funds, medical care and social protection;
operational and other expenditure; returned resources; payments in exchange of
claims of insurance fund for the personnel working in the Public Electricity
Company; interest payments; payments for military equipment procurement; and
NATO expenses) of the ordinary state budget as published monthly on the official
website of the General Accounting Office of the Ministry of Finance, and in line with
the corresponding line items established in the ordinary state budget.

 The cash balance of the investment state budget. The cash balance of the
investment state budget will be measured from above the line, based on investment
budget revenues minus investment budget expenditures of the investment state budget
as published monthly on the official website of the General Accounting Office of the
Ministry of Finance, and in line with the corresponding line items established in the
investment state budget.

 Net financial assets of local authorities are defined as financial assets minus
financial liabilities of local authorities. Financial assets include deposits of local
authorities in the Bank of Greece and deposits of local authorities in the commercial

20

domestic banking sector. Deposits will be measured at face value excluding accrued
interest in line with recording for monetary survey data. Financial liabilities include
short and long term loans from the domestic banking system to local authorities,
measured at face value, consistent with recording for monetary survey data.

 Net financial assets of social security funds are defined as financial assets minus
financial liabilities of social security funds.

o Financial assets include

 Deposits of social security funds in the Bank of Greece and direct
deposits of social security funds in the domestic commercial banking
system and indirect deposits held by the IKA mutual fund. Deposits
are measured at face value excluding accrued interest, consistent with
reporting requirements for monetary survey data.

 Holdings of direct shares or indirect shares (through the IKA mutual
fund), held by social security funds quoted on the Athens Stock
Exchange. Holdings of shares will be measured at the end-of-month
market value.

 Direct or indirect holdings of Mutual Fund units issued by Greek
management companies (other than the IKA mutual fund). Holdings of
holdings will be measured at the end-of-month market value.

 Holdings of central government bonds, including short and long-term
securities issued domestically, long-term securities issued abroad
operated from Bank of Greece accounts, and indirect holdings through
the IKA mutual fund. Holdings will be measured at nominal value.

o Financial liabilities include the short and long term loans from the domestic
banking system to the social security funds, measured consistently with
monetary survey data.

6. Adjustments. For the purpose of the program, the primary expenditure of the central
government that is monitored excludes payments related to bank support, when carried out
under the program’s banking sector support and restructuring strategy. Costs that may be
excluded from the balance include loans to financial institutions and investments in equity of
financial institutions (requited recapitalization); unrequited recapitalization; and purchases of
troubled assets. However, any financial operation by central government to support banks,
including the issuance of guarantees or provision of liquidity, will be immediately reported to
IMF, European Commission and ECB staff. Further, this performance criterion will be
adjusted upward for any possible revenue overperformance in the central government against
the current projection as indicated below:

21

7. Central government revenue (Cumulative from January 1, 2010)

8. June 2010: €25,056 million

9. September 2010: €41,232 million

10. December 2010: €58,382 million.

11. Supporting material.

 Data on cash balances of the ordinary and state budgets will be provided to the
European Commission, ECB and IMF by the General Accounting Office in the
Ministry of Finance within three weeks after the end of the month. Data will include
detailed information on revenue and expenditure items, in line with monthly reports
that are published since January 2010 on the official website of the Ministry of
Finance.

 Data on net financial assets of local authorities and social security funds will be
provided to the IMF, European Commission and ECB by the Statistics Department of
the Bank of Greece within four weeks after the end of the month.

B. Ceiling of State Budget Primary Spending (Performance Criterion)

12. Definition: The state budget primary spending consists of state budget spending
(spending of the ordinary state budget plus spending of the investment budget) minus interest
expenditures paid by the state budget, in line with the definitions provided above. Primary
expenditure of the central government that is monitored for the PC excludes any cash
payments related to bank restructuring, when carried out under the program’s banking sector
restructuring strategy. Costs that may be excluded from the balance include loans to financial
institutions and investments in equity of financial institutions (requited recapitalization);
unrequited recapitalization; and purchase of troubled assets. However, any financial
operation by central or general government to support banks, including the issuance of
guarantees or provision of liquidity, will be immediately reported to European Commission,
ECB and IMF staff.

13. Supporting material. The General Accounting Office of the Ministry of Finance will
provide monthly expenditure data of the ordinary and investment state budget, as defined
above.

C. Non-accumulation of Domestic Arrears by the General Government
(Continuous Indicative Target)

14. Definition. For the purpose of the program, domestic arrears are defined as accounts
payable to domestic suppliers past due date by 90 days. Data will be provided within four

22

weeks after the end of the month. The stock of arrears as of end-April stood at 5.6 billion
euro.

15. Supporting material. The Ministry of Finance will provide data on monthly
expenditure arrears of the general government, as defined above. Data will be provided
within four weeks after the end of the month.

D. Ceiling on the Overall Stock of Central Government Debt (Performance Criterion)

16. Definition. The overall stock of central government debt will refer to debt that
corresponds to the activities of the state budget and will be defined for the purposes of the
program as the total outstanding gross debt liabilities of the central government. It will
include, but not be limited to, liabilities in the form of securities and loans. The program
exchange rate will apply to all non-euro denominated debt. For the purposes of the program,
the ceiling on the stock of central government debt will exclude debt arising from payments
for bank restructuring, when carried out under the program’s banking sector restructuring
strategy. This includes loans to financial institutions and investments in equity of financial
institutions (requited recapitalization); unrequited recapitalization; and purchase of troubled
assets. However, any financial operation by the central government to support banks,
IMF, European Commission and ECB staff.

17. Adjusters. The ceiling on the overall stock of central government debt will be
adjusted upward (downward) by the amount of any upward (downward) revision to the stock
of end-December 2009 central government debt.

18. Supporting material. Data on the total stock of central government debt will be
provided to the European Commission, ECB and IMF staff by the General Accounting Office
consistent with the debt published in the public debt bulletin no later than 30 days after the
end of each month.

E. Ceiling on New Central Government Guarantees (Performance Criterion)

19. Definition. The ceiling on the new central government guarantees shall exclude
guarantees to support banks and exclude guarantees related to EIB financed loans.

20. Supporting material. All new central government guarantees will be reported in
detail, identifying amounts and beneficiaries. The General Accounting Office will provide
the data on a monthly basis within three weeks after the end of each month.

23

F. Non-accumulation of External Debt Payments Arrears by the General Government
(Continuous Performance Criteria)

21. Definition. For the purposes of the program, an external debt payment arrear will be
defined as a payment on debt contracted or guaranteed by the general government, which has
not been made within seven days after falling due. The performance criterion will apply on a
continuous basis throughout the program period.

22. Supporting material. The stock of external arrears of the general government system
will be provided by the General Accounting Office with a lag of not more than seven days
after the test date.

G. Overall Monitoring and Reporting Requirements

23. Performance under the program will be monitored from data supplied to the EC, ECB
and IMF by the Ministry of Finance, the General Accounting Office, and Bank of Greece.
The authorities will transmit promptly to the IMF, EC and ECB staff any data revisions in a
timely manner.

H. Monitoring of Structural Benchmarks

24. Pension reform. The government has initiated a pension reform which should be
adopted by the end of September 2010. In preparing this reform, the authorities will consult
with EC/IMF/ECB experts and the National Actuarial Authority will produce a report to
assess whether the parameters of the new system significantly strengthen long-term actuarial
balance. The draft law for the new and actuarially-balanced system should be available by
the end of June, 2010.

25. Expectations for the Pension Reform. The reform will:

 Merge pension funds in three funds by 2018.

 Introduce a new system to strengthen the link between contributions and benefits,
with uniform rules that will apply pro-rata (as a sum of the accrued rights under the
old system and the benefits accrued under the new system) to all current and future
workers. Workers retiring in and after 2015 will collect benefits from this system.

 Set the normal retirement to age 65 across all systems, including for those insured
before 1993 and women in the public sector, by 2015. After 2020, the normal
retirement age will increase in line with life expectancy.

24

 Restrict early retirement to age 60 by 2011, including for those insured before 1993,
workers in heavy and arduous professions, and those with 35 or more years of
contributions.

 Index benefits to changes in the consumer price index, starting in 2014 (benefits will
be frozen 2010–2013).

 Include a means-tested pension for all citizens older than the normal retirement age so
that an important safety net is provided, consistent with fiscal sustainability.

 Lengthens the years over which the pensionable earnings base is calculated from the
top 5 out of the last 10 years of earnings to lifetime earnings.

 Review conditions for disability pensions by the end of March of 2011 and introduce
stricter conditions for eligibility by December of 2011, including periodic
re-examination of those with disability pensions.

25

Athens, May 3, 2010

Mr. Jean-Claude Juncker
President
Eurogroup

Mr. Olli Rehn
Commissionner
European Commission

Mr Trichet
President
European Central Bank

Dear Messrs. Juncker, Rehn and Trichet,

The attached Memorandum of Economic and Financial Policies (MEFP) outlines the
economic and financial policies that the Greek Government and the Bank of Greece,
respectively, will implement during the remainder of 2010 and in the period 2011‒2013 to
strengthen market confidence and Greece’s fiscal and financial position. An annexed
Memorandum of Understanding (MoU) specifies detailed economic policy measures that will
serve as benchmarks for assessing policy performance in the context of the quarterly reviews
under the financial assistance programme.

The authorities will work closely with the European Commission and the European Central
Bank to pursue reforms to meet our conditionality. We will fully implement the policies
included in the Decision and the Recommendation addressed by the European Union on 16
February 2010, frame tight budgets in the coming years with the aim to reduce our deficit
significantly below 3 percent of GDP in 2014, achieve a downward trajectory in the public
debt-GDP ratio in 2013, safeguard the stability of the financial system, and implement
structural reforms to boost the economy’s capacity to produce, save, and export.

The authorities are particularly determined to lower the fiscal deficit, including by
implementing a significant effort to achieve higher and more equitable tax collections, and by
constraining spending in the government wage bill and entitlement outlays, among other
items.

In view of these efforts and to signal our commitment to effective macroeconomic policies,
we request financial assistance from euro area Member States for a total amount of €80
billion over a 36 months period, in support of our ambitious multi-year policy programme.
We sent a parallel request for financial assistance to the IMF for a total amount of €30 billion
(SDR 26.4 billion).

26

The implementation of our program will be monitored through quantitative performance
criteria and structural benchmarks as described in the attached MEFP, and through the
detailed and specific economic policy criteria in the MoU. There will be quarterly reviews of
the arrangement, in coordination with the IMF. The first review is expected to be completed
in the course of the third calendar quarter of 2010. The reviews will assess progress in
implementing the program and reach understandings on any additional measures that may be
needed to achieve its objectives. Each review will include an in-depth assessment of program
financing in light of the joint financing of this program by the IMF.

The Greek authorities believe that the policies set forth in the attached memorandum are
adequate to achieve the objectives of our economic program, but stand ready to take any
further measures that may become appropriate for this purpose. The authorities will stay in
very close contact and consult with the European Commission, the ECB and the Fund on the
adoption of these measures and in advance of revisions to the policies contained in the MEFP
and the MoU. All information requested by the European Commission, the ECB and the
Fund to assess implementation of the program will be provided.

We are copying this letter to Mr. Strauss-Kahn, Managing Director of the IMF.

Sincerely,

/s/ /s/
______________________________ _______________________________
George Papaconstantinou George Provopoulos
Minister of Finance Governor of the Bank of Greece

27

GREECE

Memorandum of Economic and Financial Policies

May 3, 2010

I. RECENT DEVELOPMENTS

1. The economic downturn accelerated coming into 2010. Greek real GDP declined
by 2 percent in 2009 and indicators suggest that activity will weaken further in 2010.
Following the Greek elections in October, the realization that the fiscal and public debt
outturn for 2008 and 2009 were significantly worse than had been reported by the previous
government caused confidence to drop, financing costs to increase, and growth and
employment to suffer.

2. The crisis exposed the weak fiscal position. The deficit of 5.1 percent of GDP in
2007, at the top of the cycle, shows that Greece entered the downturn with a large underlying
public deficit. With weak revenue policies and tax administration, especially leading up to
the 2009 elections and aggravated by the recession, revenues declined notably. Spending,
meanwhile, increased significantly, especially on wages and entitlements, reflecting weak
spending discipline and monitoring and control, which also led to new arrears. The deficit
jumped to an estimated 13.6 percent of GDP while the public debt rose to over 115 percent of
GDP in 2009. The monitoring and control deficiencies delayed the implementation of
corrective fiscal policies.

3. The financial system has been adversely affected. With the deteriorating fiscal
results came downgrades of government bonds by rating agencies, and investors started
backing out of Greek bonds, driving up their yields. Furthermore, it is clear that the deep
macroeconomic and structural problems combined with unavoidable strong fiscal adjustment
over the medium term are likely to weigh on activity for some time. This combination of
factors affects negatively the banking system. Impaired loans are rising while borrowing
costs in the interbank and wholesale markets have increased, putting pressure on bank
profitability.

4. Despite the recession, the external deficit is declining only gradually. Inflation
and domestic costs have increased well above those of Greece’s euro partners over the last
decade and Greece has lost competitiveness. As a result, the external current account deficit
at end 2009 was still over 11 percent of GDP, and the net international investment position is
over negative 83 percent of GDP. The external interest bill on the foreign debt has increased
to over 5 percent of GDP, so it will take a surplus in trade of goods and services to return the
current account to a more sustainable position. This will require a strengthening of economic

28

policies and competitiveness to lay the foundations for a growth model that relies more on
investment and exports.

II. KEY OBJECTIVES AND THE OUTLOOK

5. The main objectives of the program are to correct fiscal and external imbalances
and restore confidence. Without regaining confidence in the sustainability of fiscal and
economic developments, the cost of funding the economy is bound to stay high if not
increase further. The fiscal and the external imbalances need to be corrected. Facing these
two tasks at the same time is challenging, requiring a major reorientation in the economy.
Growth is unlikely to be buoyant as the initial corrective fiscal measures are implemented,
but with financial sector policies to preserve the soundness of the banking sector and strong
medium-term fiscal and structural policies, the economy will emerge from this experience in
better shape than before with higher growth and employment.

6. The government foresees an extended adjustment period:

 Real GDP growth is set to contract significantly in 2010‒2011, but should gradually
recover thereafter. The economic program assumes negative growth of 4 percent in
2010 and 2½ percent in 2011. While fiscal consolidation is bound to weigh on
economic activity at first, it is expected that confidence effects from the front-loaded
fiscal measures and the strong medium-term economic program in combination with
comprehensive structural reforms will create the conditions for a return to growth
from 2012 onward.

 Inflation needs to be reduced significantly below the euro area average for Greece to
regain swiftly price competitiveness. Domestic demand tightening, both through
fiscal adjustment and efforts to moderate wages and pensions, together with
cost-cutting measures in the economy, will be essential to bring inflation down in a
meaningful way. In this regard, addressing oligopolistic structures to reduce high
markups in some sectors will also be important.

 The external deficit is projected to decline gradually over the medium term as
domestic demand and inflation moderate and the economy responds to structural
reforms to improve the supply of exports and reduces the dependence on imports.
This process will naturally take several years, while the interest costs on the
substantial external debt will pressure the current account for some time.

III. ECONOMIC POLICIES

7. To achieve the program objectives, all available fiscal, financial, and structural
policies will be used. The economy needs a strong and sustained adjustment program to
correct fiscal imbalances and place debt on a downward path in the medium term, maintain
banking sector stability, and restore competitiveness:

29

 Fiscal adjustment will have to be the cornerstone of the program. The
government is committed to put in place durable adjustment measures, on top of those
already announced in March this year, of 11 percent of GDP in cumulative terms
through 2013, with additional remedial measures in 2014 to reduce the deficit to well
below 3 percent of GDP. This large adjustment is needed to put the debt-GDP ratio
on a downward trajectory from 2013 onward, which will be sustained after the
program by keeping primary balances in a sizeable surplus (at least 5 percent of
GDP) up to 2020. To sustain fiscal consolidation over the medium term, the
government also is committed to strengthen the fiscal policy framework and fiscal
institutions.

 Incomes and social security policies need to buttress the fiscal adjustment effort
and restoration of competitiveness. Realigning incomes to sustainable levels is
necessary to assist fiscal correction, support a reduction in inflation well below the
euro area average, and improve price and cost competitiveness on a lasting basis.
Social security programs need to be strengthened to confront underlying structural
imbalances that result from the ageing of the population, where growth in entitlement
costs for Greece is projected to be among the highest in the European Union with
current policies. As the largest annual overruns in the budget consistently come from
the social security funds, reforms cannot be postponed any longer to safeguard the
viability of the system.

 Financial sector policies need to maintain stability. While currently capital buffers
in the banking system are reassuring, bank supervisors will need to monitor closely
liquidity and nonperforming loans at individual banks. The Bank of Greece and the
government will further strengthen and clarify the key elements of Greece’s
supervisory and financial crisis framework to assist the banking system through this
period of lower growth.

 Structural reforms that boost the economy’s capacity to produce, save, and
export will be critical for the medium-term recovery. Greece’s openness is lagging
euro-area peers. The government is determined to implement an ambitious program
of reforms to modernize the public sector and render product and labor markets more
efficient and flexible, create a more open and accessible environment for domestic
and foreign investors, and reduce the state’s direct participation in domestic
industries.

8. The government is committed to fairness in the distribution of the adjustment
burden. Our resolve to protect the most vulnerable in society from the effects of the
economic downturn was taken into account in the design of the adjustment policies. In
consolidating government finances, larger contributions will be raised from those who have
traditionally not carried their fair share in the tax burden. With regard to the reduction in
public wages and in pensions, the minimum earners have been protected:

30

 Pension reductions: The elimination of the 13th and 14th pensions is compensated,
for those receiving less than €2500 a month, by introducing a new flat bonus of €800
a year. The benefit reduction is weighted toward the higher pension earners.

 Wage bill reductions. The 13th and the 14th wage payments will be eliminated for all
employees. To protect the lower income segment, here too, for those receiving less
than €3000 a month, a flat bonus payment of €1000 a year per employee will be
introduced, which will be financed through cutting salary allowances for higher
income segments.

 Further, minimum pensions and family support instruments will not be cut, and the
most vulnerable will be compensated for the possible adverse impact of policies. To
explain and forge consensus on policies to overcome the crisis, the government will
invite representatives of businesses and labor to sign a social pact for the duration of
the program. The spirit of the above considerations is to maintain strong social
cohesion, fight poverty, and maintain employment.

A. Fiscal Policies

9. The Greek government recognizes the need to implement a frontloaded
multiyear adjustment effort given Greece’s very high and still growing debt ratio and
large fiscal deficit. All the necessary measures to strengthen market confidence and
convince creditors that Greece will regain control over the debt dynamics will be taken. A
difficulty is that policies to restore external price competitiveness, which in a monetary union
have to rely on reductions in domestic costs and prices, will initially weigh on economic
activity, government revenue and debt dynamics. Therefore, the effort has to take place in a
period of contracting economic activity, naturally slowing revenues, and cyclically high
expenditure. However, it is imperative to place fiscal policies, and the economy, on a sound
path for future growth. It is clear that the public sector has become too large and costly and
has to become smaller, more efficient and agile, and oriented to providing better services to
citizens.

10. The fiscal strategy is anchored in placing the debt-GDP ratio on a declining path
from 2013 onward and reducing the general government deficit to well below 3 percent
of GDP by 2014. To avoid reform fatigue and boost market confidence, the government’s
strategy is strongly to frontload the fiscal adjustment. All the fiscal measures for the
remainder of 2010-2012 have been identified, and most of them will be adopted in the
coming weeks. Fiscal measures for 2013 have also been identified with some residual gap
remaining that will need to be addressed in coming reviews.

11. A very strong start has already been made leading to a significant reduction in
the 2010 first quarter deficit. For the remainder of 2010 additional measures will be
implemented beyond those stipulated in the EU Council Decision and Recommendation
of 16 February 2010 and those announced in March 2010 (Table 1). The three biggest

31

upfront measures are an immediate cut in the public sector wage bill, and in pension outlays,
and further increases in the VAT and selected excises (together with other steps yielding 2½
percent of GDP in further savings already in 2010). This will assure that the deficit,
notwithstanding the recession, drops from an estimated 13.6 percent of GDP in 2009 to 8.1
percent of GDP in 2010. These very large upfront efforts show the government’s resolve in
responding to the recent deterioration in market sentiment and the large fiscal challenges, and
will help overcome the adverse developments on revenue and support payments such as
higher unemployment outlays. These large measures come on top of those already
undertaken, which include the first installment of lowering the government’s wage bill and
selected social security benefits (while safeguarding the minima), the substantial reductions
in operating expenditures in all ministries, and significant permanent revenue measures and
special taxes on highly profitable enterprises and large properties, and on luxury goods. Thus,
the government’s resolve is unwavering and every effort will be made to distribute the
burden equitably.

12. For 2011 and beyond, further revenue and expenditure measures have been
identified to secure fiscal targets. Together with the full-year effect of the advance
measures taken in mid-2010, these will cover the adjustment needs for 2011 projected at 4
percent of GDP. Adjustment measures in 2012 will continue at a pace of 2½ percent of GDP
and in 2013 they are projected to be 2 percent of GDP. Given the expected weakness in GDP,
the headline deficit in percent of GDP is expected to drop to 7½ percent in 2011, with more
significant headline declines in subsequent years when economic growth resumes.

 Expenditures will be cut by the equivalent of around 7 percent of GDP through
2013. Since adoption of the euro, Greece has increased its noninterest expenditures by
8 percentage points of GDP, including with public wages, consumption, and social
transfers imposing an overly large burden on the state. This needs to be reversed. As a
result, wage and entitlement program costs need to be curtailed as they represent the
bulk of the primary budget expenditures, and thereafter wages and pensions will be
subsequently frozen in nominal terms for the duration of the program. The
government has also planned other reductions in government spending, including by
replacing over time only 20 percent of retiring employees, and by consolidating
municipalities and local councils. It is essential that the burden of the adjustment on
the expenditure side be distributed over multiple programs, so even investment
spending will need to be rationalized and shifted to more intensive and efficient use
of EU structural and cohesion funds, as feasible. Independent reviews will be
launched, conducted by internationally renowned experts, of the public administration
and of existing social programs to help identify actions to rationalize the organization
of public administration and improve targeting of social programs so that resources
are channeled to the most vulnerable.

 Revenues will be increased by the equivalent of around 4 percent of GDP
through 2013. Revenue from higher income segments of society will include a boost

32

in (presumptive) taxation on liberal professions, an increase in luxury goods taxation,
and (temporary) surcharges on highly profitable entities and high valued properties as
well as other measures to combat tax evasion included in the recently adopted tax
reform legislation. Other revenue increases will include broadening the VAT base,
increasing rates and bringing up excise taxes where Greece is below the euro area
average and collection efficiency is low. Green taxes and “health” taxes (such as on
consumption of alcohol and tobacco) will also play a part in the revenue raising
effort.

13. Besides these direct fiscal steps for the budget, the government also has initiated
a series of important structural fiscal reforms. These will boost sustainability by helping
to strengthen control over revenues and expenditures:

 Pension reform. The current pension system is unsustainable and will become
insolvent if responsible measures are not taken to place it on a sound footing. The
government has initiated a reform which should be adopted before end-June 2010.
The National Actuarial Authority will produce a report to verify that the parameters
of the new system ensure long-term actuarial balance. The existing pension funds will
be merged in three funds. The reform will introduce a new system to strengthen the
link between contributions and benefits, with uniform rules that will apply pro-rata to
all current and future workers. The normal retirement age will be set to 65 years,
increasing in line with life expectancy. Benefits will be indexed to prices. The reform
will also restrict early retirement, including for those insured before 1993, and reduce
the list of heavy and arduous professions. The new system will also include a means-
tested social pension for all citizens above the normal retirement age so that an
important safety net is provided, consistent with fiscal sustainability.

 Health sector reform. The government will implement double-entry accrual
accounting in hospitals, the periodic publication of audited accounts, and
improvements in pricing and costing mechanisms. The government also plans to
separate health funds from administration of pensions, merge the funds to simplify
the overly fragmented system, and bring all health-related activities under one
ministry.

 Tax reform. The government has obtained passage of a tax bill that includes
important components to make the tax system more equitable. The income tax system
has become more progressive; exemptions and deductions have been reduced to
broaden the tax base; and a number of reforms have been introduced to fight tax
evasion, including the tightening of obligations to issue receipts for VAT and to
document living expenses, and the introduction of presumptive taxation. The
government will further review the tax system to simplify it and increase efficiencies
as necessary.

33

 Tax administration. Tax administration improvements are being implemented for
which technical assistance has already been received from the IMF. In the short run,
the government’s strategy will focus on safeguarding revenue from the largest
taxpayers, stronger enforcement and auditing of high-wealth individuals and self-
employed (where risk of evasion is largest) and prosecuting the worst offenders,
strengthening enforcement of VAT filing and payment, and collecting on the large
stock of tax arrears. For the medium-term, the government will design a program of
structural reforms in key tax compliance and administration areas, including:
developing and maintaining a comprehensive compliance risk management
framework (notably preparing a compliance strategy for 2012); developing taxpayer
service capacity to support compliance improvement efforts; substantially improving
enforcement operations, particularly in audit, using risk-based approaches; and
building headquarters strategic management and planning capabilities in tax and
customs administration.

 Public financial management and fiscal framework. Technical assistance from the
IMF and the European Commission on public financial management and longer-term
budgeting reforms will be re-prioritized to address the short-term challenges we are
facing. In this context, the General Accounting Office (GAO) will be responsible for
monitoring and reporting of general government data; the government will introduce
standardized commitment control procedures for all public entities to prevent the re-
emergence of arrears; ensure that all budgets are prepared within a medium-term
fiscal strategy for the general government and presented before the start of the fiscal
year; introduce top-down budgeting with expenditure ceilings, a sufficient
contingency reserve, and a medium-term expenditure framework for the State budget;
require a supplementary budget for any overruns above this contingency provision;
and amend the 1995 budget management law to give effect to the above. The
government will continue to work with the technical assistance teams of the IMF and
the European Commission to implement the recommendations already received, and
to make further improvements over the course of the program, including the creation
of an independent fiscal agency attached to parliament.

 Debt management framework. The government will update its debt management
strategy and the tools to ensure that risk is adequately managed. To enhance market
confidence and communication, the government plans to review the operational and
risk management framework for debt management to ensure the transparency and
predictability of our actions. The government has already sought technical assistance
in this area from the IMF.

 Fiscal and other public sector reporting of information, including statistical
aspects. Upon taking office in October 2009, the new government immediately
disclosed that the fiscal deficit for 2008 was under-reported and needed to be revised.
Working closely with Eurostat on fiscal data processing and reporting, the

34

government has already taken remedial measures to prevent the reoccurrence of such
problems and has designed jointly with the European Commission an action plan to
address outstanding statistical issues. Among these, full independence has been
granted to the Greek Statistical Office and sufficient resources will be devoted in the
coming years to improve statistical systems and seek appropriate resident technical
assistance to ensure rapid progress. To that end, the measures in the joint Greek
government and European Commission Statistical Action Plan will be fully
implemented. Going forward, we feel confident that we are in a position to provide
accurate fiscal data to the Fund and our European partners Further, since January
2010, timely monthly central government budget reports on a cash basis have been
published. The GAO will also start publishing monthly data on expenditures pending
payment, including arrears, from July 2010. Efforts will also be intensified to
improve the collection and processing of general government data compiled
according to the European System of National and Regional Accounts (ESA) required
under the existing EU legal framework, and compile comprehensive data on
employment in the general government. Detailed information will be furnished to the
European Commission, the ECB and the Fund on the operating accounts and balance
sheets of key public enterprises.

14. The program will be closely monitored and measures will be taken as necessary.
There are risks to the program from lower revenue, higher social transfers, further downward
revisions of growth, additional fiscal liabilities from the public and financial sector, and
higher interest costs. However, these can be managed and the government stands ready to
take appropriate measures to preserve the program objectives, including by reducing
discretionary spending, as necessary. At the same time, there is some upside potential. Our
2010‒2011 projections include cautious estimates of the measures taken, positive confidence
effects could boost GDP growth and reduce market risk premia, and our revenue
administration efforts could start to yield more revenue gains than currently assumed in the
program. Should confidence rebound and the market support Greece earlier than expected, or
the supply response from reforms comes in more vigorously, these benefits will be saved and
bring forward the correction to the intended deficit to achieve a speedier return to fiscal
sustainability.

B. Financial Sector Policies

15. Despite a strong solvency position, at present, the Greek banking system is
facing challenges. The system’s equity base was substantially strengthened in 2009, jumping
from €24 to €33 billion, including through capital injections from the government, for €3.8
billion, capital increases from the owners, and retained earnings. All banks are in compliance
with the capital adequacy requirement of 8 percent, and the average capital adequacy ratio
rose to 11.7 percent at end 2009. However, the fiscal crisis and a weakening economic
environment resulted in a reversal in credit growth and an increase in non-performing loans,

35

which reached 7.7 percent at end-2009 while profitability declined and might become
negative this year.

16. The immediate challenge for the banks is to manage carefully the current tight
liquidity conditions. In the general context of the turbulence affecting the debt markets for
the Greek government, the Greek banks have lost wholesale market access to fund their
operations since end-2009. Maturing interbank liabilities have not been renewed, or only at
high costs, and some moderate deposit outflows were noted during the first months of 2010,
which has put pressure on the liquidity position of many Greek banks. As a result, the banks
have increasingly relied on Eurosystem credit operations. To assist the banks in these
difficult times the government has extended the banking assistance package of early 2009
(€28billion of which €11 billion had been used by end-2009), to provide a substantial €17
billion in additional liquidity and the government is implementing another extension of this
support facility subject to approval by decision of the European Commission. Within the
existing Euro system framework, national central banks may give support to temporarily
illiquid, but solvent institutions. In the event that such support is given by the Bank of
Greece, it will be fully guaranteed by the Greek state in a manner that is consistent with
relevant ECB and EU requirements.

17. The government and the Bank of Greece are also putting in place a new safety
net to preserve the sound level of bank equity, and thus improve conditions to support
the real economy. Anticipating that banks profits may decline further, possibly impacting
their equity position, the government will establish (by June 30, 2010, as a structural
benchmark), through specific legislation and in consultation with the IMF, the European
Commission, and the ECB, a fully independent Financial Stability Fund (FSF). The FSF’s
key decision makers will be persons of recognized standing in financial matters, appointed by
the government and the Governor of the Bank of Greece (who will make most of the
appointments).

18. The primary purpose of the FSF is to preserve the financial sector’s soundness
and thus its capacity to support the Greek economy, by providing equity support to
banks as needed. Whenever supervisory assessments conclude that a bank’s capital buffer
might fall below adequate levels, the shareholders will be invited to immediately bring
additional capital or take bridging capital support from the FSF. If banks are then not able to
expeditiously raise additional capital on their own and repay the FSF, a restructuring process
will take place under the lead of the FSF, in line with EU competition and state aid
requirements.

19. Other elements of the safety net for the financial sector will also be strengthened.
Corporate debt restructuring legislation, and the current proposal for a personal debt
restructuring law, will be in line with international best practices, to ensure that credit
discipline is maintained, that creditor and consumer rights are protected, and that relevant
information concerning borrowers’ track record is preserved.

36

20. The Bank of Greece will implement intensified supervision and increase the
resources dedicated to banking supervision. This will include an increase in the frequency
and speed of data reporting, and the further development of a comprehensive framework for
regularly stress-testing financial institutions. Staffing will be increased both for on-site
inspections and off-site review, also taking into account the new responsibilities of the Bank
of Greece with respect to insurance supervision. Additional flexibility will be introduced in
the management of human resources, and all Bank of Greece staff will be granted strong
legal protection for actions performed in good faith.

21. Close coordination will be maintained with home and host country supervisors
within the EU framework for cross-border bank supervision. In this context, fully aware
of the significant presence of Greek banks in South Eastern European (SEE) countries; a
number of MoUs with the host supervisory authorities (both EU and non-EU) have been
signed. Communication with regulators in SEE regarding risk assessments and liquidity
contingency plans are also intensifying.

C. Structural Policies

22. Structural policies are strengthened in order to boost competitiveness and
emerge from the crisis quickly. These will enhance the flexibility and productive capacity
of the economy, ensure that wage and price developments restore and then sustain
international competitiveness, and progressively alter the economy’s structure towards a
more investment and export-led growth model. The Greek government will work closely
with the European Commission and the ECB to pursue reforms as specified in the MoU
attached to this MEFP. In particular:

 Modernizing public administration. Fragmented employment practices will be
reformed by reorganizing recruitment procedures and finalizing the single payment
authority for wages. A simplified remuneration system will be introduced, in a cost-
saving manner that will cover basic wages and all allowances which apply to all
public sector employees. Procurement practices will be strengthened to generate
efficiency gains and ensure transparency. The health care system, where there have
been major expenditure overruns, will be overhauled through reforms in management,
accounting and financing systems. A reorganization of sub-central government will
be implemented to reduce the number of local administrations and elected/appointed
officials. The government will collaborate with the EC to launch an independent
external functional review of public administration at the central government level.
These reforms will help prioritize government activities and, strengthen the fight
against waste and corruption throughout the public administration.

 Strengthening labor markets and income policies. In line with the lowering of
public sector wages, private sector wages need to become more flexible to allow cost
moderation for an extended period of time. Following consultation with social

37

partners and within the frame of EU law, the government will reform the legal
framework for wage bargaining in the private sector, including by eliminating
asymmetry in arbitration. The government will adopt legislation for minimum entry
level wages in order to promote employment creation for groups at risk such as the
young and long-term unemployed. In parallel, the government will implement the
new control system for undeclared work and modernize labor market institutions.
Employment protection legislation will be revised, including provisions to extend
probationary periods, recalibrate rules governing collective dismissals, and facilitate
greater use of part-time work. The scope for improvements in the targeting of social
expenditures will be revised in order to enhance the social safety net for the most
vulnerable.

 Improving the business environment and bolstering competitive markets. The
government will shortly adopt legislation establishing one-stop shops for starting new
enterprises to cut procedures, costs and delays. Legislation will be introduced to cut
licensing and other costs for industry. The government will fully implement key steps
of the EU Services Directive in 2010, especially in priority areas such as tourism,
education and retail. Over the course of next year, restricted professions will be
opened by reducing fixed tariffs and other restrictions in the legal, pharmacy, notary,
engineering, architect, road haulage, and auditing professions. The role of the
Hellenic Competition Commission (HCC) will also be strengthened. Network
industries will be progressively liberalized, especially in the transport and energy
sector while strengthening regulators in these sectors in line with EU policies.

 Managing and divesting state enterprises. These need to be subject to greater
transparency to increase efficiency and reduce losses. As a first step, 2009 financial
statements audited by chartered accountants of the ten largest loss makers will be
published on the internet. A time table and action plan for improving the financial
performance of main loss-makers, most notably in the railway and public
transportation companies will be produced. This action plan will include concrete
steps to reduce costs, including by streamlining the networks serviced and increasing
tariffs. The government will review the role for divesting state assets, including of
land owned by public enterprises or the government. The government will further
review the scope for improving corporate governance, and enhancing oversight of
state-ownership.

 Improving the absorption of EU structural and cohesion funds. The government
will work closely with the EC to raise the absorption rate of Structural and Cohesion
Funds, including by establishing targets for payment claims based on Management
Information System (MIS) data every six months to be measured by certified data and
a system of "fast track project production” which includes deadlines for each step of
the approval and implementation of projects. A minimum of ten major projects per
annum will be submitted. Within the overall public investment envelope agreed in

38

this program, a central account will be established to be used for budgetary
appropriations for the national cofinancing of Structural and Cohesion Funds. A
specific Task Force will be established with the Commission to ensure the faster
delivery of high-quality projects.

IV. PROGRAM FINANCING

23. We anticipate covering the program’s financing requirements with financial
support from euro-area member states and the IMF while strengthening access to the
private capital markets. Notwithstanding the significant fiscal adjustment, we project a
public financing gap of around €110 billion, for the program period, which we expect to
cover through matching bilateral lending support from euro area member states (€80 billion)
and through IMF support (€30 billion). Greece will draw on these resources in parallel
throughout the program period, drawing on the bilateral and IMF financing in a ratio of 8 to 3
in each disbursement (measured at the program exchange rate). We are confident that
resolute implementation of our economic program will help our economy recover and bolster
market sentiment. If fiscal consolidation proceeds faster than expected or if market
conditions improve significantly during the program period, we would refrain from drawing
on the full bilateral and IMF support.

V. PROGRAM MONITORING

24. Progress in the implementation of the policies under this program will be monitored
through quarterly (and continuous) quantitative performance criteria (PCs) and indicative
targets, structural benchmarks, program reviews and consultation clauses. These are detailed
in Tables 2 and 3. The attached TMU contains definitions. Quantitative targets up to
December 2010 are PCs. Targets for 2011‒2013 are indicative and for 2011 will be
converted into PCs at the time of the second review before end-2010. A joint EC/ECB MoU
specifies, notably, the structural policies recommended in the MEFP, and sets a precise time
frame for their implementation.

25. In the context of the arrangement, the Bank of Greece will undergo a safeguards
assessment in accordance with the IMF safeguards policy. In this regard, and to facilitate a
timely completion of the assessment, the authorities have provided the information requested
for the assessment to commence, and have also authorized the external auditors to provide
information to and hold discussions with the staff of the IMF. As a related matter, and given
that purchases from the IMF will be used to provide direct budget support, a memorandum of
understanding between the government and the Bank of Greece will establish a clear
framework on the modalities for the repayment of IMF financing and the servicing of interest
payments and other charges. As part of these arrangements, Fund disbursements will be
deposited into the government’s single treasury account at the Bank of Greece pending their
use.

39

Table 1. Greece: Fiscal measures included in the programme

2010
in million EUR % of GDP
Revenue 0.5
Increase in VAT rates 800 0.3
Increase in excise tax on fuel 200 0.1
Increase in excise tax on cigarettes 200 0.1
Increase in excise tax on alcohol 50 0.0
Expenditure 1.9
Wage bill cut by reducing the Easter, summer and Christmas
1100 0.5
bonuses and allowances
Intermediate consumption 700 0.3
Pension cuts (highest pensions) 350 0.1
Elimination of solidarity allowance (second instalment) 400 0.2
Pensions cut by reducing the Easter, summer and Christmas
1500 0.6
bonuses
Public investment reduction 500 0.2
TOTAL ANNUAL IMPACT 5800 2.5

40

2011
Carry over from last year 1.1
Increase the VAT rates 1000 0.4
Increase in excise tax on fuel 250 0.1
Increase in excise tax on cigarettes 300 0.1
Increase in excise tax on alcohol 50 0.0
Wage bill cut by reducing the Easter, summer and Christmas
400 0.2
bonuses and allowances
Pensions cut by reducing the Easter, summer and Christmas
500 0.2
bonuses
Revenue 2.2
Taxation on unauthorised establishments 800 0.4
Luxury goods tax 100 0.0
Book specification of income 50 0.0
Gaming royalties 200 0.1
Gaming licenses 500 0.2
Special levy on profitable firms 600 0.3
Levies on illegal buildings 500 0.2
VAT - changes in the sub-categories and broadening base 1000 0.4
Green tax 300 0.1
Presumptive taxation 400 0.2
Increase of legal values of real estate 400 0.2
Taxation of wage in kind (cars) 150 0.1
Expenditure 1.0
Intermediate consumption 300 0.1
Savings from the introduction of unified public sector wages 100 0.0
Pension freeze 100 0.0
Kalikrates savings 500 0.2
Pension cuts (highest pensions) 150 0.1

41

2012
Revenue 0.7
Excise non-alcoholic beverages 300 0.1
Gaming licenses 225 0.1
Gaming royalties 400 0.2
VAT - broadening base 300 0.1
Increase of legal values of real estate 200 0.1
Expenditure 1.2
Reduction in public employment in addition to the 5-to-1
600 0.3
replacement rule
Means test unemployment benefit 500 0.2
Cut transfers to public entities 800 0.4
Unidentified cuts in operational expenditure 900 0.4

42

2013
Revenue -0.3
Gaming licenses -725 -0.3
Expenditure 0.5
Reduction in public employment in addition to the 5-to-1
500 0.2
replacement rule
Unidentified measures 4200 1.8

43

2014
Temporary measures -0.4
Special levy on profitable firms (discontinuation of temporary
-600 -0.2
measures)
Levies on illegal buildings (discontinuation of temporary
-450 -0.2
measures)
Unidentified measures 5750 2.4

TOTAL MEASURES 2010‒2014 30000 13.0

Table 2. Greece: Quantitative Performance Criteria (in billions of euros, unless otherwise indicated)

Performance Criteria Indicative Targets
juin-10 sept-10 déc-10 déc-11 déc-12 déc-13
Progr. 1/ Progr. 1/ Progr. 1/ Progr. 2/ Progr. 3/ Progr. 4/

1. Floor on the modified general government primary cash balance -5.0 -4.0 -5.7 -2.1 2.4 7.4
2. Ceiling on State Budget primary spending 34 50 67 67 68 69

3. Ceiling on the accumulation of new domestic arrears by the general government 5/ .. .. .. 0 0 0
4. Ceiling on the overall stock of central government debt 342 342 342 365 .. ..
5. Ceiling on the new guarantees granted by the central government 2.0 2.0 2.0 1.0 0.0 0.0

6. Ceiling on the accumulation of new external payments arrears on external debt contracted or
guaranteed by general government from multilateral or bilateral official creditors 5/ 0 0 0 0 0 0

4/Cumulatively from January 1, 2013 (unless otherwise indicated).
5/ Applies on a continuous basis from April 30, 2010 onward.

Table 3. Greece: Structural Conditionality for 2010 1/

Measures Date Macrocritical relevance

Prior actions
1. Reduce public wage bill by cutting bonuses/allowances; and pension bonuses (except minimum pensions). Improves fiscal sustainability; has signaling effect for private sector
wage setting.
2. Increase standard VAT rate from 21 to 23 percent and reduced rate from 10 to 11 percent and excise tax rates on alcohol, tobacco, and fuel with a Improves fiscal sustainability.
yield of at least €1.25 billion in the remainder of 2010.

3. Appoint staff team and leader in GAO responsible for general government in-year cash reporting. Establishes in-year oversight responsibilities of general government
fiscal policy.
Structural benchmarks End-June 2010
1. Establish the independent Financial Stability Fund (FSF) to preserve the financial sector's soundness and thus its capacity to support the Greek Enhances financial stability.
economy by providing equity support to banks as needed.

2. Adopt and start to implement a reorganization of sub-central government with the aim to reduce the number of local administrations and Improves fiscal sustainability.
elected/appointed officials (Kalikrates).

3. Submit to parliament amendments to Law 2362/1995 to (i) require the MoF to present a three-year fiscal and budget strategy, (ii) introduce top- Improves credibility of the budget and fiscal consolidation program.
down budgeting with expenditure ceilings for the State budget and multi-year expenditure estimates by line ministry, (iii) introduce standard
contingency margins, (iv) require a supplementary budget for any overspending above the contingency, (v) and introduce commitment controls. The
amended law should be immediately effective, including in the context of the 2011 budget.

4. The National Actuarial Authority to produce a report to assess whether the parameters of the new system significantly strengthen long-term Reduces budgetary costs of ageing and improves long-term fiscal
actuarial balance. sustainability. Increases labor force participation.

End-September 2010
1. Adopt a comprehensive pension reform that reduces the projected increase in public spending on pensions over the period 2010-60 to 2½ percent Improves fiscal sustainability.
of GDP.

2. Establish a commitment register in all line ministries and public law entities. Begin publishing monthly data on general government in-year fiscal Reduces budget overruns.
developments (including arrears).

3. Publish 2009 financial statements of the ten largest loss-making public enterprises, audited by chartered accountants, on the official website of the Increases transparency of fiscal risks to fiscal sustainability.
Ministry of Finance.

4. Put in place an effective project management arrangement (including tight MOF oversight and five specialist taskforces) to implement the anti- Achieves revenue targets and enhances sustainability of the
evasion plan to restore tax discipline through: strengthened collection enforcement and recovery of tax arrears—coordinated with the social security consolidation by increasing burden sharing of the adjustment.
funds—of the largest debtors; a reorganized large taxpayer unit focused on the compliance of the largest revenue contributors; a strong audit
program to defeat pervasive evasion by high-wealth individuals and high income self-employed, including prosecution of the worst offenders; and a
strengthened filing and payment control program.
End-December 2010
1. Publish a detailed report by the ministry of finance in cooperation with the single payment authority on the structure and levels of compensation and Reduces wage escalation. Improves transparency of public sector
the volume and dynamics of employment in the general government. employment.

2. Adopt new Regulation of Statistical Obligations for the agencies participating in the Greek Statistical System. Enhance confidence in fiscal reporting and support the formulation of
fiscal policy.
3. Prepare a privatization plan for the divestment of state assets and enterprises with the aim to raise at least 1 billion euro a year during the period Reduces state intervention in the real economy; improves market
2011-2013. efficiency; and cuts fiscal contingencies.
1/ Structural benchmarks for 2011 will be determined in the reviews for end-September and end-December 2010.

Table 4. Greece: Fiscal financing gap and disbursement schedule, 2010‒2013, billion euro 1/

SUM 2010 2011 2012 2013
10Q2-13Q2 Jan-Apr May-Jun Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
A. GG deficit 48.5 6.1 3.1 4.6 4.6 4.1 4.1 4.1 4.1 3.6 3.6 3.6 3.6 2.7 2.7
B. GG deficit + PE borrowing need 53.0 6.8 3.4 4.9 4.9 4.5 4.5 4.5 4.5 4.0 4.0 4.0 4.0 3.0 3.0
C. Debt amortization (existing bonds) 138.3 20.1 9.5 5.4 4.4 13.8 13.1 10.8 5.4 19.1 13.2 12.6 5.5 9.8 15.6
D. of which short-term debt 50.0 … 0.0 4.6 4.3 4.0 4.0 4.0 4.0 4.0 4.0 4.5 4.5 4.0 4.0
E. of which long-term debt 88.3 ... 9.5 0.8 0.1 9.8 9.1 6.8 1.4 15.1 9.2 8.1 1.0 5.8 11.6
F. Stock flow adjustment 1.5 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
G. Public sector financing need (B+C+F) 192.8 27.0 13.0 10.4 9.4 18.4 17.7 15.5 10.0 23.2 17.3 16.7 9.6 12.9 18.7
H. Rollover of short-term debt … 0% 87% 93% 100% 100% 113% 113% 100% 100% 111% 111% 100% 100%
I. Rollover of long-term debt … 0% 0% 0% 0% 0% 0% 0% 75% 75% 75% 75% 100% 100%
J. New GG borrowing 77.9 28.9 0.0 4.0 4.0 4.0 4.0 4.5 4.5 15.3 10.9 11.1 5.8 9.8 15.6
K. of which short-term borrowing (D*H) 47.0 … 0.0 4.0 4.0 4.0 4.0 4.5 4.5 4.0 4.0 5.0 5.0 4.0 4.0
L. of which long-term borrowing (E*I) 30.9 … 0.0 0.0 0.0 0.0 0.0 0.0 0.0 11.3 6.9 6.1 0.8 5.8 11.6
M. Privatisation receipts 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
N. PE borrowing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
O. Bank support scheme 10.0 0.0 5.0 5.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
P. Financing gap (E-G-H-I+J+O) 109.2 -1.9 18.0 11.4 5.4 14.4 13.7 11.0 5.5 7.9 6.4 5.6 3.8 3.1 3.1
Q. Loan disbursements 110.0 0.0 20.0 9.0 9.0 15.0 12.0 8.0 5.0 10.0 6.0 6.0 2.0 6.0 2.0
R. of which IMF 30.0 0.0 5.5 2.5 2.5 4.1 3.3 2.2 1.4 2.7 1.6 1.6 0.5 1.6 0.5
S. of which EU 80.0 0.0 14.5 6.5 6.5 10.9 8.7 5.8 3.6 7.3 4.4 4.4 1.5 4.4 1.5

1/ Data in this table are subject to revision.

47

GREECE: MEMORANDUM OF UNDERSTANDING ON

SPECIFIC ECONOMIC POLICY CONDITIONALITY
May 3, 2010

The quarterly disbursements of bilateral financial assistance from euro area Member States
will be subject to quarterly reviews of conditionality for the duration of the arrangement. The
release of the tranches will be based on observance of quantitative performance criteria, and a
positive evaluation of progress made with respect to policy criteria in the MEFP and in this
Memorandum, which specifies the detailed criteria that will be assessed for the successive
reviews, up to the end of 2011. The detailed criteria for the years 2012 and 2013 will be
specified at the occasion of the spring 2011 review.

The authorities commit to consult with the European Commission, the ECB and the IMF on
adoption of policies that are not consistent with this memorandum. They will also provide
them with all requested information for monitoring progress during program implementation
and the economic and financial situation (Annex 1). Prior to the release of the instalments, the
authorities shall provide a compliance report on the fulfilment of the conditionality.

1. Actions for the first review (to be completed by end Q2-2010)

i. Fiscal consolidation

Progress with the implementation of the 2010 budget and fiscal measures adopted thereafter.
Progress is assessed against the (cumulative) quarterly deficit ceilings in the MEFP (including
the TMU). The authorities take the following measures, generating savings for a total amount
of 2.5% of GDP in 2010:

 Increase in VAT rates, with a yield of at least EUR 1800 million for a full year
(EUR 800 million in 2010);
 Increase in excises for fuel, tobacco and alcohol, with a yield of at least EUR 1050
million for a full year (EUR 450 million in 2010);
 Reduction in the public wage bill by reducing the Easter, summer and Christmas
bonuses and allowances paid to civil servants, with net savings amounting to EUR
1500 million for a full year (EUR 1100 million in 2010);
 Elimination of the Easter, summer and Christmas bonuses paid to pensioners,
while protecting those receiving lower pensions, with net savings amounting to
EUR 1900 for a full year (EUR 1500 million in 2010);
 Cancel budgetary appropriations in the contingency reserve with the aim of saving
EUR 700 million;
 Reduce the highest pensions with the aim of saving EUR 500 million for a full
year (EUR 350 million in 2010);
 Abolish most of the budgetary appropriation for the solidarity allowance (except a
part for poverty relief) with the aim of saving EUR 400 million;
 Reduce public investment by EUR 500 million compared to plans;

48

 Parliament adopts, as planned in the stability programme of January 2010, a Law
introducing a progressive tax scale for all sources of income and a horizontally
unified treatment of income generated from labour and assets;
 Parliament adopts, as planned in the stability programme of January 2010, a Law
abrogating exemptions and autonomous taxation provisions in the tax system,
including income from special allowances paid to civil servants. The law applies
retroactively from January 1, 2010.

ii. Structural Fiscal Reforms

Government adopts by end June 2010 a law that requires the monthly publication by the
General Accounting Office (GAO) of timely monthly statistics (on a cash basis) on revenue,
expenditure and financing for the State, as well as on spending pending of payment, including
arrears.

iii. Financial sector regulation and supervision

The Bank of Greece, on behalf of the Government, establishes an independent Financial
Stability Fund, with a strong governance structure, to deal with potential solvency issues and
to preserve the financial sector’s soundness and its capacity to support the Greek economy, by
providing equity support to banks as needed (Annex 2).

Start implementation of intensified supervision of banks, including by allocating more human
resources, also with a view to the take-over of insurance supervision, frequent reporting under
tighter deadlines and quarterly solvency stress tests.

Review the private sector bankruptcy law to ensure consistency with ECB observations.

iv. Structural reforms

Authorities undertake reforms to modernise public administration:

Parliament adopts legislation reforming public administration at the local level, notably by
merging municipalities, prefectures and regions with the aim of reducing operating costs and
wage bill.

Parliament adopts legislation requiring online publication of all decisions involving
commitments of funds in the general government sector.

To strengthen labour market institutions:

Government starts discussions with social partners in order to revise private sector wage
bargaining and contractual arrangements.

49

To enhance competition in open markets:

Government adopts law to simplify the start-up of new businesses.

Government adopts the horizontal legislation on the Services Directive.

Government adopts a recovery plan for the railway sector with a timetable for measures
which:

 specify how operational activities will be made profitable, including by closing
loss-making lines;
 ensure the effective implementation of EU Directives allowing for competition
amongst providers of railway services;
 provide for the restructuring of holding company, including the sale of land and
other assets.

To raise the absorption rates of Structural and Cohesion Funds:

Government will put in place measures, including the implementation of Law 3840/2010, the
establishment of a "fast-track project production”, to achieve the six-monthly targets for
payment claims targets in the absorption of Structural and Cohesion Funds set down in the
table below. Compliance with the targets shall be measured by certified data. The government
will take steps to achieve an annual target of submitting 10 major projects applications to
Commission services.

Payment claims to be submitted
Programming period 2007-2013 between 2010 and 2013
(in million of euro) 2010 2011 2012 2013
European Regional Fund and Cohesion
Fund 2330 2600 2850 3000
European Social Fund 420 750 880 890
Target of first half of the year 1105 1231 1284
Target of second half of the year 2245 2499 2606
Total annual target 2750 3350 3730 3890

Government establishes a technical task force in direct contact with Commission services, to
ensure rapid implementation of a) major projects in transport sectors, b) environmental
projects; c) financial engineering instruments and d) public administration reform, relying on
increased technical assistance.

Government shall have completed steps to ensure that budgetary appropriations for the
national co-financing of Structural and Cohesion Funds are channelled to a special central
account that cannot be used for any other purposes and which should be available to provide
co-financing to all entities in the general government.

50

2. Actions for the second review (to be completed by end Q3-2010)


Rigorously implement the budget for 2010 and the fiscal consolidation measures announced
afterwards, including those in this Memorandum. Progress is assessed against the
(cumulative) quarterly deficit ceilings in the MEFP (including the TMU).

Government submits the draft budget for 2011 to Parliament. The budget provides
information and reliable projections on the entire general government sector and targets a
further reduction of the general government deficit in line with the MEFP. It includes a
detailed presentation of fiscal consolidation measures amounting to at least 3.2% of GDP
(4.3% of GDP, if carryovers from measures implemented in 2010 are considered), and
detailed information on the situation of public enterprises.

The budget includes the following measures (in exceptional circumstances, measures yielding
comparable savings could be considered in close consultation with European Commission,
IMF and ECB staff):

 Implement the rule of replacing only 20 percent of retiring employees in the public
sector (central government, municipalities, public companies, local governments,
state agencies and other public institutions);
 Reduction in intermediate consumption of the general government by at least EUR
300 million compared to the 2010 level, on top of savings envisaged in the context
of reforming public administration and the reorganisation of local government
(see next measure);
 Government starts implementing legislation reforming public administration and
the reorganisation of local government with the aim of reducing costs by at least
EUR 1500 million from 2011 to 2013, of which at least EUR 500 million in 2011.
 Freeze in the indexation of pensions, with aim of saving EUR 100 million;7
 Reduction in domestically-financed investments by at least EUR 1000 million, by
giving priority to investment projects financed by EU structural and cohesion
funds;
 Temporary "crisis levies" on highly profitable firms, yielding at least EUR 600
million in additional revenue per year in 2011, 2012 and 2013;
 Incentives to regularise land-use violations, yielding at least EUR 1500 million
from 2011 to 2013, of which at least EUR 500 million in 2011;
 Enforce the presumptive taxation of professionals, with a yield of at least EUR 400
million in 2011 and increasing returns in 2012 and 2013;
 Broaden the VAT base by including services that are currently exempted and
move a significant proportion (at least 30%) of the goods and services currently
subject to the reduced rate to the normal rate, with a yield of at least EUR 1000
million;
 Start phasing in a "green tax" on CO2 emissions, with a yield of at least EUR 300
million in 2011;

7
Adjustments may be needed in case of negative inflation.

51

 Collect revenue from the licensing of gaming: at least EUR 500 million in sales of
licences and EUR 200 in royalties;
 Expand the base of the real estate tax by updating asset values to yield at least
EUR 500 million additional revenue;
 Increase taxation of wages in kind, including by taxing car lease payments (at least
EUR 150 million);
 Initiate the collection of a special tax on unauthorised establishments (at least EUR
800 million per year);
 Increase taxes on luxury goods by at least EUR 100 million;
 The budget will establish detailed expenditure ceilings for each line-ministry, local
governments, and social security funds consistent with the general government
deficit target. This also pertains to the medium-term fiscal framework for 2012-
2013;
 The budget will contain indicative information on monthly revenue per category,
and expenditure per Ministry. Updated figures will be regularly made available
online.

Parliament adopts modifications to the organic budget law, if necessary, to ensure that the
draft budget law for 2011 onwards contains detailed information on outturn and plans of the
entire general government sector – including local government, social security, hospitals and
legal entities. An annex to the budget will present key figures on the financial performance of
the largest public enterprises, concomitant budgetary and tax expenditures, and related fiscal
risks.

ii. Structural fiscal reforms

Parliament adopts legislation to improve the efficiency of the tax administration and controls,
implementing recommendations provided by the European Commission and IMF. In
particular, they put in place an effective project management arrangement (including tight
MOF oversight and taskforces) to implement the anti-evasion plan to restore tax discipline
through: strengthened collection enforcement and recovery of tax arrears (coordinated with
the social security funds) of the largest debtors; a reorganized large taxpayer unit focused on
the compliance of the largest revenue contributors; a strong audit program to defeat pervasive
evasion by high-wealth individuals and high income self-employed, including prosecution of
the worst offenders; and a strengthened filing and payment control program.

Parliament adopts a reform of the pension system to ensure its medium- and long-term
sustainability. It should limit the increase of public sector spending on pensions, over the
period 2010‒2060, to under 2.5 percent of GDP. The reform will be designed in close
consultation with European Commission, IMF and ECB staff, and its estimated impact on
long-term sustainability will be validated by the EU Economic Policy Committee. The
parameters of the system will ensure long-term actuarial balance, as determined by the
National Actuarial Authority. The reform should include the following elements:

 Simplification of the fragmented pension system by merging the existing pension
funds in three funds and introducing a unified new system for all current and
future employees. The new universally binding rules on entitlements,
contributions, accumulation rules and indexation of pension rights shall be applied
pro rata to everybody from 1 January 2013;

52

 Introduction of a unified statutory retirement age of 65 years, including for women
in the public sector (phased in immediately after adoption), to be completed by
December 2013;
 Gradual increase in the minimum contributory period for retirement on a full
benefit from 37 to 40 years by 2015;
 Amendment of the pension award formula in the contributory-based scheme to
strengthen the link between contributions paid and benefits received, with accrual
rate limited to an average annual rate of 1.2%, and pensions indexed to prices;
 Introduction of an automatic adjustment mechanism that, every three years and
starting in 2020, will increase the (minimum and statutory) retirement age in line
with the increase in life expectancy at retirement;
 Extend the calculation of the pensionable earnings from the current last five years
to the entire lifetime earnings (while retaining acquired rights);
 Reduction of the upper limit on pensions;
 Introduction of a means-tested minimum guaranteed income for elderly people
(above the statutory retirement age), to protect the most vulnerable groups,
consistent with fiscal sustainability;
 Measures to restrict access to early retirement. In particular, increase the minimum
early retirement age to 60 years by 1st January 2011, including for workers in
heavy and arduous professions and those with 40 years of contributions. Abolish
special rules for those insured before 1993 (while retaining acquired rights).
Substantial revision of the list of heavy and arduous professions;
 Reduction of pension benefits (by 6% per year) for people entering retirement
between the ages of 60 and 65 with a contributory period of less than 40 years;
 Introduction of stricter conditions and regular re-examination of eligibility for
disability pensions.

Government adopts a reform of the GAO, including the following elements:

 Strengthening of the role of the GAO in budget planning and control;
 Provision of the necessary resources in terms of high-level personnel,
infrastructure and equipment support, managerial organisation and information-
sharing systems;
 Provision of safeguards for GAO staff against political interference, and personal
accountability in the provision of reliable data;
 Strengthen the institutional mechanisms for providing reliable and plausible
official budgetary forecasts that take into account available recent execution
developments and trends; to this end, the official macroeconomic forecasts should
be reviewed by external experts;.

Government takes the following measures to ensure timely provision of reliable fiscal
accounts and statistics:

 GAO starts, in June 2010, the publication of timely monthly statistics (on a cash
basis) on revenue, expenditure and financing and spending arrears for the
"available general government" and its sub entities (state, social security, hospitals,
local governments and legal entities);
 Government adopts a detailed time-bound action plan, to be agreed with Eurostat,
to improve collection and processing of general government data required under

53

the existing EU legal framework, in particular by enhancing the mechanisms that
ensure the prompt and correct supply of these data, and ensure personal
responsibility in cases of misreporting; and seek appropriate resident technical
assistance to ensure rapid progress;
 Government starts to publish timely information on the financial situation in public
enterprises (at least the 10 largest loss-making ones) and other public entities not
classified in the general government (including detailed income statements,
balance sheets and data on employment and the wage bill). To this end, a regular
and timely reporting mechanism is introduced.

iii. Financial sector regulation and supervision

The Bank of Greece and the Government ensure that the Financial Stability Fund is fully
operational.

Review the adequacy of the insolvency framework, for banks as well as for non-financial
entities.

iv. Structural reforms

Progress with reforms to modernise public administration:

Government launches the process, including the principles and timetable, for establishing a
simplified remuneration system covering basic wages and allowances. It shall apply to all
public sector employees, and be part of an overall reform of Human Resource management.
This should lead to a system where remuneration reflects productivity and tasks.

Government launches independent functional reviews of the public administration at central
level and of existing social programmes. It is to be conducted by internationally renowned and
external experts. The Terms of Reference for the reviews will be agreed with European
Commission, IMF and ECB staff. The objectives of the reviews are:

 To take stock of the use of resources, including human resources, to carry out
government functions (e.g., employment, goods and services) in the central
government and subordinated public institutions;
 To identify actions to rationalize the organisation of public administration and
generate productivity gains, and quantify possible fiscal savings from
implementation of these actions;
 To assess effectiveness and appropriateness of existing social programmes and
make proposals for reform or cancellation of the least effective ones, while
quantifying possible fiscal savings from implementation of these actions.

To strengthen competition in open markets

Authorities make the General Commercial Registry (GEMI) fully operational

Under the Services Directive, the government finalizes the review of existing sectoral
legislation (screening), ensures that the point(s) of single contact is(are) operational.

54

Government adopts a law on road freight transport that removes restrictions not provided for
in Directive 96/26/EC of 29 April 1996 on admission to the occupation of road haulage,
including minimum fixed prices.

Issue a Ministerial Decree for the liberalisation of wholesale electricity market and a
Ministerial Decision on rationalisation of electricity consumer tariffs.

Promoting investments and exports

Government takes measures, in line with EU competition rules, to facilitate FDI and
investment in innovation in strategic sectors (green industries, ICT etc...) through a revision of
the Investment Law, the adoption of measures to facilitate PPPs, action to fast-track large FDI
projects and measures to strengthen export promotion policy.

3. Actions for the third review (to be completed by end Q4-2010)


1. Government achieves the programme target for the 2010 general government deficit.

Parliament adopts draft budget for 2011 targeting a further reduction of the general
government deficit and including the consolidation measures specified in this Memorandum.

Government prepares a privatization plan for the divestment of state assets and enterprises
with the aim to raise at least 1 billion euros a year during the period 2011‒2013.


Government adopts draft legislation to strengthen the fiscal framework, following discussions
with European Commission and IMF staff. The following elements should be part of the
reform:

 Introduce a medium-term fiscal framework covering the general government based
on rolling three-year expenditure ceilings for the State, social security entities and
local governments;
 Strengthen the position of the Finance Minister vis-à-vis line ministers in both
budget preparation and execution phases (giving him/her veto power on spending
decisions and execution);
 Introduce a compulsory contingency reserve in the budget, corresponding to 10
percent of total appropriations government departments other than wages, pensions
and interest; the use of the contingency reserve will be decided by the Finance
Minister;
 Ensure that Parliament does not modify the overall size of the budget at the
approval stage, and focus on the composition of public expenditure and revenue,
and reliability of projections for expenditure and revenue;
 Introduce stronger expenditure monitoring mechanisms, particularly by
implementing an appropriate control of spending commitments, through which
spending entities (line ministries, local authorities, social security funds, hospital
and legal entities) would report on a regular basis to the Treasury on their

55

outstanding expenditure commitments against their authorised appropriations in
the budget law;
 Introduce a revenue rule for the general government, according to which the
allocation of higher-than-expected revenues should be specified ex-ante in the
budget law;
 Creation of a fiscal agency attached to Parliament providing independent advice
and expert scrutiny on fiscal issues, and reporting publicly on the budgetary plans
and execution of the spending entities of the general government, and on
macroeconomic assumptions used in the budget law.

Parliament adopts reform of the public wage legislation consistent with this Memorandum.

iii. Structural reforms

To reform and modernise public administration:

Government adopts all necessary legislation and decree for the full entry into force of the
local administration reform.

Government completes the creation of a Single Payment Authority for the payment of wages
in the public sector. The Ministry of finance publishes a detailed report, based on information
and in collaboration with the Single Payment Authority, on the structure and levels of
compensation and the volume and dynamics of employment in the general government.

Authorities complete the first phase of the public procurement system reform, with a central
procurement authority and involving a swift implementation of the electronic platform for
public procurement and introducing the use of e-auctioning system. It should ensure a
common approach and tendering procedures, ex ante and ex post controls.

Government adopts legislation and measures needed to implement the Better Regulation
agenda.

To modernise the health care systems:

Government adopts legislation on the institutional framework for health supplies (Law
3580/2007), establishes new systems for the management of drugs that favour more use of
generic medicines, including a new system for the electronic monitoring of doctors'
prescriptions.

Government completes the programme of hospital computerisation, upgrading hospital
budgeting systems, and the reform of management, the accounting (including double-entry
accrual accounting) and financing systems.

Government ensures greater budgetary and operational oversight of health care spending by
the Finance Minister, the publication of audited accounts and improvement in pricing and
costing mechanisms.

56

To strengthen labour market institutions:

Following dialogue with social partners, the government proposes and parliament adopts
legislation to reform wage bargaining system in the private sector, which should provide for a
reduction in pay rates for overtime work and enhanced flexibility in the management of
working time. Allow local territorial pacts to set wage growth below sectoral agreements and
introduce variable pay to link wages to productivity performance at the firm level.

Government amends regulation of the arbitration system, (Law 1876/1990), so that both
parties can resort to arbitration if they disagree with the proposal of the mediator.

Following dialogue with social partners, government adopts legislation on minimum wages to
introduce sub-minima for groups at risk such as the young and long-term unemployed, and
put measures in place to guarantee that current minimum wages remain fixed in nominal
terms for three years.

Government amends employment protection legislation to extend the probationary period for
new jobs to one year, to reduce the overall level of severance payments and ensure that the
same severance payment conditions apply to blue- and white-collar workers, to raise the
minimum threshold for activation of rules on collective dismissals especially for larger
companies, and to facilitate greater use of temporary contracts and part-time work.

To enhance competition in open markets:

Government adopts changes to existing (sectoral) legislation in key services sectors such as
tourism, retail and education services. New legislation should facilitate establishment, by
significantly reducing requirements covered by Articles 15 and 25 of the Services Directive,
in particular requirements relating to quantitative and territorial restrictions, legal form
requirements, shareholding requirements, fixed minimum and/or maximum tariffs and
restrictions to multidisciplinary activities. It should also facilitate the provision of cross-
border services by implementing the freedom to provide services clause in Article 16 of the
Service Directive through an approach ensuring legal certainty for services providers, i.e. by
clearly setting out in the respective (sectoral) legislation which requirements can and which
requirements cannot be applied to cross-border services.

Government proposes legislation to remove restrictions to trade in restricted professions
including:

 the legal profession, to remove unnecessary restrictions on fixed minimum tariffs,
the effective ban on advertising, territorial restrictions on where lawyers can
practice in Greece;
 the pharmacy profession, covering limits on the number of pharmacies and
minimum profit margins;
 the notary profession, covering fixed tariffs, limits on the number of notaries,
territorial restrictions on where notaries can practice and the effective ban on
advertising;
 architects, covering fixed minimum tariffs;
 engineers, covering fixed minimum tariffs;
 auditing services, covering fixed tariffs.

57

Government adopts legislation and takes all necessary measures to complete the full and
effective transposition of EU rules on recognition of professional qualifications, including the
transposition of the Professional Qualifications Directive (Directive 2005/36/EC) including
compliance with ECJ rulings.

Government adopts legislation to simplify and accelerate the process of licensing enterprises,
industrial activities and professions, which inter alia revises Law 3325/05, makes Law
3335/05 for business areas, and operationalises the spatial plan.

Government adopts a law modifying the existing institutional framework of the Hellenic
Competition Commission (HCC) which abolishes the notification system for all agreements
falling within the scope of Article 1 of Law 703/1977, gives the HCC the power to reject
complaints, to increase the independence of HCC members, and to establish reasonable for
the investigation and issuance of decisions.

Promoting investments and exports

Government carries out in depth evaluation of all R&D and innovation actions, including in
various Operational Programmes, in order to adjust the national strategy.

Government creates an external advisory council financed through the 7th R&D programme,
to consider how to foster innovation, how to strengthen links between public research and
Greek industries and the development of regional industrial clusters.

To raise the absorption rates of Structural and Cohesion Funds

Government to meet targets for payment claims (to be measured against certified data) and for
the submission of large projects.

4. Actions for the fourth review (to be completed by end Q1-2011)


Rigorously implement the budget for 2011 in line with this memorandum, and the fiscal
consolidation measures in the budget. Progress is assessed against the (cumulative) quarterly
deficit ceilings in the MEFP (including the TMU).


Parliament adopts legislation to strengthen the fiscal framework, consistent with this
memorandum.

iii. Structural reforms

To reform and modernise public administration:

Government completes effective transposition of Directive 2007/66/EC on public
procurement regarding remedies, and at the same time ensures that responsibility for the

58

review of award procedures be vested with the administrative courts. Government completes
the transposition of Directives 2009/81 on defence and security expenditure.

Reforms to improve the business environment:

Government fully implements the recovery plan for the railway sector to make operational
activities profitable, implement EU Directives and restructure the holding company.

Parliament adopts legislation unbundling electricity and gas activities.

Government adopts measures, in line with EU requirements to strengthen the independence
and capacity of the Energy Regulatory Authority and further unbundle the transmission
system operators DESMIE (electricity) and DESFA (gas), including by bringing forward
transparent criteria and procedure to govern the selection of the chair and members of RAE.

5. Actions for the fifth review (to be completed by end Q2-2011)


consolidation measures in the budget. Progress is assessed against the quarterly deficit
ceilings in the MEFP (including the TMU).

ii. Structural reforms

Reforms to modernise public administration:

Government adopts legislation/decrees establishing a simplified remuneration system
covering basic wages and allowances that applies to all public sector employees ensuring that
remuneration reflects productivity and tasks: this reform should be part of an overall reform
of Human Resource management in the public sector.

On the findings of the external and independent functional review of public administration at
central level, the government adopts legislation and measures to rationalize the use of
resources, the organisation of the public administration and social programmes.

Authorities take the following measures to strengthen labour market institutions:

Government completes the reform to strengthen the Labour Inspectorate, which should be
fully resourced with qualified staff and has quantitative targets on the number of controls to
be executed.

Government adapts the legislation on tackling undeclared work to require the registration of
new employees before they start working.

Review the scope for improvements in the targeting of social expenditures to enhance the
social safety net for the most vulnerable.

59

To strengthen competition in open markets:

Government adopts specific legislation to in restricted professions including for the legal
profession, the pharmacy profession, the notary profession, architects, engineers and auditing
services.


Government to meet targets for payment claims to be measured against certified data.

6. Actions for the sixth review (to be completed by end Q3-2011)


consolidation measures in the budget. Progress is assessed against the quarterly deficit
ceilings in the MEFP (including the TMU).

Government adopts draft budget for 2012 aiming at a further reduction of the general
government deficit in line with the programme and including the detailed presentation of
consolidation measures amounting to at least 2.2% of GDP, including the following measures
(in exceptional circumstances, measures yielding comparable savings could be considered in
close consultation with European Commission, IMF and ECB):

 Reduce public employment on top of the rule of 1 recruitment for each 5
retirements in the public sector; the reduction in public employment on top of the
5-to-1 rule should allow savings of at least EUR 600 million;
 Establish excises for non alcoholic beverages, for a total amount of at least EUR
300 million;
 Continue the expansion of the base of the real estate tax by updating asset values
to yield at least EUR 200 million additional revenue;
 Continue the reorganisation of local government, to generate at least EUR 500
million in savings;
 Nominal freeze in pensions;
 Continue to increase the effectiveness of the presumptive taxation of professionals,
with the aim of collecting at least additional EUR 100 million;
 Reduction of transfers to public enterprises by at least EUR 800 billion following
their restructuring;
 Make unemployment benefits means-tested (aiming at savings of EUR 500
million);
 Collect further revenue from the licensing of gaming: at least EUR 225 million in
sales of licences and EUR 400 in royalties;
 Further broadening of VAT base, by moving goods and services from the reduced
to the normal rate, with the aim of collecting at least additional EUR 300 million.

60


Reforms to modernise public administration:

Government ensures full operation of the Better Regulation Agenda to reduce administrative
burden by 20% compared with 2008 level, and sends report to the Commission.

Improve the business environment:

Government changes legislation to mitigate tax obstacles to mergers and acquisitions such as
the non-transfer of accumulated losses, together with the company and the complex
computation of "excessive benefit" (Law 3522/2006, Article 11) in the transfer of private
limited companies.

Government takes decisions to simplify the process to clear customs for exports and imports
and give larger companies or industrial areas the possibility to be certified to clear cargo for
the customs themselves; Government abolishes the requirement of registration with the
exporter’s registry of the chamber of commerce for obtaining a certificate of origin.

7. Actions for the seventh review (to be completed by end Q4-2011)


2. Government achieves the programme target for the 2011 general government deficit.

Parliament adopts draft budget for 2012 a further reduction of the general government deficit
and including consolidation measures amounting to at least 2.2% of GDP, in line with
Memorandum.



Government to meet targets for payment claims (to be measured against certified data) and for
the submission of large projects.

Introduced of web-based open-access monitoring tool of procedures for approval of project
proposals and for implementation of public projects.

Ensure that the managerial capacity of all Managing Authorities and Intermediate Bodies of
operational programmes under the framework of the National Strategy Reference Framework
2007-2013 has been certified by the International Organization for Standardization according
to the standard ISO 9001:2008 (Quality Management).

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Annex 1. Provision of data
During the programme, the following indicators and reports shall be made available to the
European Commission, the ECB and the IMF by the authorities on a regular basis. In general,
reporting information provided to other multilateral and bilateral lenders involved in the
programme of financial assistance of which the assistance provided by the Community forms
part shall at the same time also be provided to the Commission, unless the Commission has
indicated that this is not specifically required. The authorities shall provide the Commission
and the ECB with compliance reports on the fulfilment of conditionality immediately after
test dates.

To be provided by the Ministry of Finance
Preliminary monthly data on the state budget execution (including Monthly, 15 days after the end
functional breakdown by main categories of revenue and expenditure of each month; these data should
and by line ministry) also be included in subsequent
transmissions in case of revision
Updated monthly plans for the state budget execution for the remainder Monthly, 30 days after the end
of the year, including functional breakdown by main categories of of each month
revenue and expenditure and by line ministry
Preliminary monthly cash data on general government entities other Monthly, 30 days after the end
than the State of each month, these data should
also be included in subsequent
Monthly data on the public wage bill (of general government, Monthly, 30 days after the end
including a functional breakdown in nominal wage and allowances of each month (starting in June
paid to government employees per line ministry and public entity), 2010)
number of employees (including a functional breakdown per ministry
and public entities outside the central government) and average wage
(including the relative shares of the base wage, allowances and
bonuses). A functional breakdown of these data into the main public
entities will be added.
Quarterly data on general government accounts, and general Quarterly accrual data, 90 days
government debt as per the relevant EU regulations on statistics after the end of each quarter
Weekly information on the Government's cash position with indication Weekly on Friday, reporting on
of sources and uses as well of number of days covered as well as the previous Thursday
information on the main government spending and receipt items
Data on below-the-line financing for the general government Monthly, no later than 15 days
after the end of each month, ;
these data should also be
included in subsequent
Data on expenditure pending payment (including arrears) of the Quarterly, within 55 days after
general government, including the State, local government, social the end of each quarter
security, and legal entities
Data on expenditure pending payment (arrears) of the State and Monthly, 30 days after the end
hospitals of each month
Public debt, and new guarantees issued by the general government to Monthly, within one month
public enterprises and the private sector
Income and expenditure statement and balance sheets of 30 largest Quarterly, three months after the
public enterprises by total expenditures end of the quarter

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Data on EU project grants (reimbursements and advances), capital Monthly, within three weeks of
expenditures and subsidies covered by EU advances or eligible for EU the end of each month
reimbursement on EU supported projects specifically agreed with the
EU
Monthly statement of the transactions through off-budget accounts Monthly, at the end of each
month
Monthly statements of the operations on the special account Monthly, at the end of each
month
Report on progress with fulfilment of policy conditionality Monthly, at the end of each
month

To be provided by the Bank of Greece
Assets and liabilities of the Bank of Greece Weekly, next working day
Assets and liabilities of the Greek banking system - aggregate Monthly, 30 days after the end
monetary balance sheet of credit institutions of each month
Evolution of the external funding provided by Greek banks to their Monthly, 15 days after the end
subsidiaries abroad8 of each month
External funding flows for the banking, corporate and government Monthly, 30 days after the end
sector, including also expected developments in the 12 months ahead of each month
Report on banking sector liquidity situation Weekly, next working day
Report on the evolution of financial stability indicators Quarterly, 15 days after the end
of each quarter depending on
data availability
Report on results from the regular quarterly solvency stress tests Quarterly, 15 days after the end
of each quarter depending on
data availability
Detailed report on the balance sheet of the Financial Stability Fund Weekly, next working day
with indication and explanation of changes in the accounts

8
All forms of debt instruments and capital, as well as net deposits provided to subsidiaries abroad.

63

Annex 2. Financial Stability Fund

General

- The purpose of the Financial Stability Fund (the ‘Fund’) is to maintain the stability of the
Greek banking system by providing equity capital in case of a significant decline of
capital buffers.
- The Fund will not provide liquidity support, which will be provided under existing
arrangements.
- The equity will be provided in the form of preference shares to credit institutions
authorised to operate in Greece by license from the Bank of Greece. The preference shares
will be convertible into ordinary shares at a later stage under certain conditions to be
further specified in the legislation establishing the Fund.
- Participation in the Fund will be mandatory, based on a trigger linked to the minimum
required level of capital adequacy requirements, as established for specific credit
institutions by the Bank of Greece, in its capacity as the competent supervisory authority,
if no private solution has been found.
- If banks are then not able to expeditiously raise additional capital on their own and repay
the Fund, a restructuring process will take place under the lead of the Fund, in line with
EU competition and state aid requirements
- The Fund will be established by specific Greek legislation.
- An initial lifespan of seven years will be set for the Fund. After the end of the lifespan of
the Fund, the ownership of the Fund rests with the Greek state to the extent of its
shareholding in the Fund

Legal status

- The Fund will be established as a private law legal entity in order to enhance its flexibility
and efficiency (e.g., to facilitate the recruitment and remuneration of appropriately
qualified staff).
- The legal structure of the Fund should allow for private participation.

Funding

- The FSF will be fully funded by the government out of the resources available under the
EU-IMF program for this purpose in the amount of EUR 10 billion. This implies that the
risk of losses arising out of the Fund’s operations would lie exclusively with the Greek
Government, as the primary shareholder in the Fund. The purchase of preference shares
by the Fund shall be made in cash.

Organizational issues

- The Fund will be managed by a Governing Council composed of (1) a Chairperson, a
Chief Executive and three directors appointed by the Governor of the Bank of Greece and
(2) two ex officio directors who represent the Minister of Finance and the Governor of the
Bank of Greece. The European Commission and the ECB will each nominate an observer
who would have a right to participate, without voting, in meetings of the Governing
Council (without prejudice, in the case of the Commission observer, to the application by
the Commission of state aid and competition rules).

65

- The Chairperson, Chief Executive and the non-ex officio directors will be required by law
to be persons of recognised standing in banking or financial matters in Greece, the EU or
internationally.
- Each of the Chairperson and the non-ex officio directors will be appointed to a five year
term of office, renewable for a further two years, and may only be compulsorily removed
from office by an appropriate Greek court on application of either the Governor of the
Bank of Greece or the Governing Council of the Fund where (1) no longer capable of
fulfilling the conditions required for the performance of the duties of office or (2) guilty of
serious misconduct.
- No member of the Governing Council may be represented on the board of directors of any
credit institution.
- The legislation establishing the Fund will provide that, when exercising the powers and
carrying out the tasks and duties conferred upon them under the legislation, neither the
Governor of the Bank of Greece nor the members of the Governing Council of the Fund
shall seek or take instructions from the Greek Government or any other State entity,
institution, body or undertaking.
- The Governing Council will present a semi-annual report to the Greek Parliament, the
European Commission, the ECB and the IMF.
- The operating expenses will be covered by the Fund.

Powers of the Fund

- In order to fulfil its purposes the Fund will enjoy certain powers over credit institutions
receiving capital from the Fund, to be exercised following consultation of the BoG. These
powers will be without prejudice to the supervisory powers of the Bank of Greece, and
will include, without limitation, the power:
o to require the BoG to provide the Fund with all information on financial
institutions necessary for it to fulfil its tasks;
o to appoint a member of the Board of Directors of a credit institution;
o to require a credit institution to present a restructuring plan;
o to veto key decisions of a credit institution (e.g., business strategy, dividend
distributions, salary caps, liquidity and asset-liability management, etc.);
o to call a general shareholders’ meeting for a credit institution in accordance with
Greek company law;
o to require conversion of preference shares into ordinary shares insofar as a credit
institution fails to meet (1) the minimum required level of capital adequacy
requirements established for credit institutions generally under applicable
regulatory requirements or (2) certain financial conditions to be established in the
restructuring plan for the credit institution; the legislation establishing the Fund
will further specify an objective procedure to be followed in establishing a market-
based conversion price, taking account of the impact of the Fund’s intervention,
the rights of shareholders under Greek law and EU state aid requirements; and
o to conduct diagnostic studies and special audits with the help of outside
consultants to assess the solvency of a credit institution where the Fund considers
this necessary.

- Each of the Bank of Greece, in its capacity as the competent authority for the supervision
of credit institutions, and the Fund will be authorised to exchange confidential information
with one another to the fullest extent permitted by EU law.

66

Conditions applicable to capital increases

- The conditions applicable to any capital increases should be aligned with the Commission
Decision of 19.11.2008 (N 560/2008 support measures for the credit institutions in
Greece). The granting of equity capital is made subject to the following conditions in
particular.
- The credit institutions will be expected to pay a market-oriented, non-cumulative
remuneration unless an analysis of the restructuring plan warrants an alternative approach.
A market-oriented, non-cumulative remuneration can either be 10% as stipulated in the
above decision or depending on the risk profile of the credit institution and the quality of
the capital, between 7% and 9.3%, whereas core tier 1 capital for fundamentally sound
credit institutions should normally be remunerated at not less than 9%.
- The credit institutions will not pay dividends or coupon on hybrid capital, unless they are
legally obliged to do so, which is typically the case when a credit institution is profit
making (the credit institution should however not be allowed to use reserves to book a
profit).
- Preference shares shall be repurchased by the credit institution for an amount that is
equivalent to the amount originally invested in the credit institution. After five years the
shares shall be repurchased or be remunerated at penal rates. If they cannot be repurchased
because the capital adequacy requirements are not fulfilled, the preference shares shall be
converted into ordinary shares.

Approval of restructuring plan by European Commission

- Any restructuring plan needs to be in accordance with State aid rules and approved by
decision of the European Commission ensuring that the credit institutions will restore
viability at the end of the restructuring period, burden sharing of shareholders is achieved
and distortion of competition is limited.

Follow-up

- The Greek authorities would prepare the necessary legislation implementing the details of
the above by the end of June 2010, at the latest.

Annex 3. Structural reforms conditionality
STRUCTURAL REFORMS: CONDITIONALITY
Action Time frame
PUBLIC ADMINISTRATION REFORMS

- launch a process to create a simplified remuneration system to September 2010
cover basic wages and all allowances applying to all public sector
employees and ensuring that remuneration reflects productivity
Simplify the remuneration system for public and tasks
sector employees
- establish a fully operational Single Payment Authority to December 2010
centralize the payment of all salaries paid to civil servants at all
levels of government

- adopt legislation for a simplified remuneration system June 2011

- complete the first phase of the public procurement system for all
December 2010
sectors and levels of government with a fully operational
Public procurement
electronic platform introducing the use of e-auctioning systems
March 2011
- implement EU Directives and have an effective appeals system

- adopt legislation to ensure transparency by requiring online
Transparency of public spending decisions publication of all government expenditure decisions June 2010

- adopt legislation reforming public administration at the local
June 2010
level
Local administration reform
- adopt all legislation and decrees for full entry force of the reform
on 1 January 2011 involving transfer of responsibilities and
December 2010
resources across entities

Independent functional review of the central September 2010

Action Time frame
government - launch an independent and external review of the organization
and functioning of the central administration

- adopt legislation and measures to rationalize the use of resources, June 2011
the organisation of the public administration and the effectiveness
of social programmes

-adopt legislation to implement the Better Regulation agenda December 2010

Better Regulation - ensure full implementation to reduce administrative burden by 20
compared with 2008 level and submit a progress report to the September 2011
Commission
LABOUR MARKET and WAGES
To prepare the revision of private sector wage bargaining and
Start discussion with social partners June 2010
contractual arrangements
- extend the probationary period for new jobs to one year

- reduce the overall level of severance payments which should
apply equally to blue and white collar workers

- raise the minimum threshold for activating rules on collective December 2010
Reform Employment Protection Legislation
dismissals especially for larger companies

- put measures in place to guarantee that current minimum wages
remain fixed in nominal terms for 3 years

- facilitate use of temporary contracts and part-time work

- following dialogue with social partners, government to adopt
legislation on minimum wages to introduces sub-minima for December 2010
Reform minimum wages
groups at risk such as the young and long term unemployed,

- guarantee that current minimum wages remain fixed in nominal

Action Time frame
terms for three years

- adopts legislation to reform wage bargaining system in the
private sector, including local territorial pacts to set wage growth
below sectoral agreements
Reform private wage bargaining system to ensure
December 2010
wage moderation
- introduce variable pay to link wages to productivity performance
at the firm level

- amend regulation of the arbitration system

- adjust legislation to introduce annual time accounts and reduce
Increase the flexibility of working hours December 2010
overtime pay

- strengthen legislation to enforce the registration of new
employees
Fight undeclared work June 2011
- ensure the Labour Inspectorate is fully staffed and quantitative
controls targets are in place

Review the scope for improvements in the targeting of social
Review social safety net expenditures to enhance the social safety net for the most June 2011
vulnerable

PENSIONS
Government to adopt a new simplified system (pro rata) for all June 2010
current and future employees including:
- by December 2015, a unified statutory retirement age of 65
Reform pension system
years, including for those insured before 1 Jan 1993
- an increased retirement age of women in the public sector to 65
by 2013
- strengthened link between contributions and benefits

Action Time frame
- pension earnings calculated on the entire lifetime
- an average annual accrual rate of 1.2
- price indexation of pensions
- an automatic adjustment mechanism that links the retirement age
with increases in life expectancy at retirement
- an increased minimum contribution period from 37 to 40 years
by 2015
- restricted access to early retirement and increased minimum
retirement age of 60 years by 1st January 2011, including for
workers in heavy and arduous professions, and those with 40 years
of contributions
- a revised disability scheme
- reduced (by 6 per year) pension benefits for people retiring
between the ages of 60 and 65 with less than 40 years of
contribution
- no special rules for those insured before 1 Jan 1993
- substantial cuts in the list of heavy and arduous professions (to
no more than 10 of employees)
- a means-tested minimum guaranteed pension for people aged
above 65 years of age
- a reduction in the number of funds to 3

Parliament adopts the pension reform September 2010

HEALTHCARE
Complete reforms to improve management and procurement
systems of health system: complete move to double accounting
Healthcare reform December2010
systems, establish operational oversight by the Finance Minister,
the publication of audited accounts
BUSINESS ENVIRONMENT
June 2010
Facilitate business start ups Simplify the start up of new businesses and make the General
September 2010
Commercial Registry (GEMI) fully operational

Action Time frame

- simplify and accelerate the process of licensing enterprises, December 2010
industrial activities and professions through legislation and by
Simplify the licensing of industrial units and making the spatial plans operational
reduce the costs of doing business
- Government to change legislation to mitigate tax obstacles to September 2011
mergers and acquisitions, and lower costs associated with customs

- adopt horizontal legislation, finalize screening of sectoral June 2010
legislation

Implement the Services Directive - make single points of contact operational September 2010

- adopt measures in key service sectors such as tourism, retail and December 2010
education

- propose sector-specific legislation to remove restrictions to trade December 2010
in the legal profession, the pharmacy profession, the notary
profession, architects, engineers, auditing services
Open up restricted professions
- implement the Professional Qualifications Directive so that December 2010
qualifications from third countries are recognized

- adopt legislation to open up restricted professions June 2011

Liberalize road freight transport by removing all unnecessary
Reform road freight transportation restrictions on admission to the occupation of road haulage,
September 2010
including minimum fixed prices

Competition policy framework December 2010
Modify the existing institutional framework of the Hellenic

Action Time frame
Competition Commission, including to allow prioritisation on
important cases and to strengthen the independence of HCC
members

- prepare a recovery plan for the railway sector to restore
profitability to operational services, ensure compliance with EU
Railways Directives, and specify a timetable for the restructuring of the June 2010
holding company including the sale of land and other assets

- implement fully the recovery plan for the railway sector March 2011

-finalise plans for the liberalization of the wholesale electricity September 2010
market and commence with the rationalization of consumer tariffs
Energy
-adopt legislation to unbundle electricity and gas activities,
including measures March 2011

- adopt measures to strengthen the independence and capacity of
the Energy Regulatory Authority March 2011

PROMOTING INVESTMENT AND
EXPORTS
Government to take measures to facilitate FDI and investment in
innovation in strategic sectors (green industries, ICT etc...),
Promoting FDI and investment in strategic
through a revision of the Investment Law, the adoption of September 2010
sectors
measures to facilitate PPPs, action to fast-track large FDI projects
and measures to strengthen export promotion policy
- Carry out in depth evaluation of all R&D and innovation actions, December 2010
R&D and innovation including in various Operational Programmes, in order to adjust
the national strategy

Action Time frame

- create an Advisory Council financed through the 7th R&D December 2010
programme, to consider how to foster innovation, how to
strengthen links between public research and Greek industries and
the development of regional industrial clusters
STRUCTURAL AND COHESION FUNDS
- put in place measures to achieve binding targets for payment June 2010
claims of Structural and Cohesion Funds and for submission of
large projects
- establish Task Force with the Commission to speed-up the
development of high quality projects, through better coordination
and other actions
- complete steps to prioritize public investment spending for
projects benefiting from EU funds, including the introduction of a
Increase absorption of Structural and Cohesion
central bank account
Funds
- meet targets for payment claims (measured against certified data) December 2010 and every six
and large projects months thereafter
- introduce a web-based open access monitoring tool of procedures
for approval of project proposals and for implementation of public December 2011
projects
- ensure that the managerial capacity of all Managing Authorities
and Intermediate Bodies of operational programmes December 2011

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GREECE: TECHNICAL MEMORANDUM OF UNDERSTANDING
May 3, 2010

This Technical Memorandum of Understanding (TMU) sets out the understandings
regarding the definitions of the indicators subject to quantitative targets (performance criteria
and indicative targets), specified in the Letter of Intent (LOI). It also describes the methods to
be used in assessing the program performance and the information requirements to ensure
adequate monitoring of the targets. We will consult with the Fund, European Commission
and ECB before modifying measures contained in this letter, or adopting new measures that
would deviate from the goals of the program, and provide the European Commission, ECB
and the Fund with the necessary information for program monitoring.

2. For program purposes, all foreign currency-related assets, liabilities, and flows will be
evaluated at “program exchange rates” as defined below, with the exception of the items
affecting government fiscal balances, which will be measured at current exchange rates. The
program exchange rates are those that prevailed on April 30, 2010. In particular, the
exchange rates for the purposes of the program are set €1 = 1.3315 U.S. dollar, €1 = 125.81
Japanese yen, €1.135 = 1 SDR.

General Government

Definition: For the purposes of the program, the general government includes:

 The entities covered under the State Budget as defined in Chapter 2 of the Law
2362/1995 regarding “Public Accounting, Auditing of Government Expenditures and
Other Regulations.”

 Local authorities comprising municipalities, prefectures, and regional governments
including their basic and special budgets, including all agencies and institutions
attached thereto, which are classified as part of local authorities according to ESA 95.

 Social security funds comprising all funds that are established as social security funds
in the registry of the National Statistical Service.

 This definition of general government also includes any new funds, or other special
budgetary and extra budgetary programs that may be created during the program
period to carry out operations of a fiscal nature as defined in the IMF’s Manual on
Government Finance Statistics 2001. The authorities will inform IMF, European
Commission and ECB staff of the creation of any such new funds or programs
immediately.

75

. Supporting material: The Ministry of Finance (MoF) will provide to the European
Commission, ECB and IMF detailed information on monthly revenues and expenditures,
domestic and foreign debt redemptions, new domestic and foreign debt issuance, change in
the domestic and foreign cash balances of the central government at the central bank of
Greece, all other sources of financing including capital transactions, and arrears of the
general government. Data will be provided within 30 days. The Bank of Greece will provide
detailed monthly data on assets and liabilities of local authorities and social security funds in
line with monetary survey data.

VI. QUANTITATIVE PERFORMANCE CRITERIA, INDICATIVE CEILINGS, AND CONTINUOUS
PERFORMANCE CRITERIA: DEFINITIONS AND REPORTING STANDARDS

A. Floor of the Modified General Government Primary Cash Balance
(Performance Criterion)

. Definition: The modified general government primary cash balance (MGGPCB) is
defined as the modified general government cash balance (MGGCB) minus interest
payments by the state budget. The MGGCB is defined as the sum of the cash balances of the
ordinary state budget, the cash balance of the investment state budget, the change in net
financial assets of local authorities and the change in net financial assets of social security
funds. Privatization receipts will be excluded from cash receipts. Net lending operations by
the state budget will be recorded as cash expenditures.

 The cash balance of the ordinary state budget. The cash balance of the ordinary
state budget will be measured from above the line, based on ordinary budget revenues
(recurrent revenue plus non-recurrent revenue minus tax refunds) minus ordinary
budget expenditures (ordinary budget expenditures will exclude amortization
payments and capital transfers to social security funds by bonds but include salaries
and pensions; grants to social security funds, medical care and social protection;
operational and other expenditure; returned resources; payments in exchange of
claims of insurance fund for the personnel working in the Public Electricity
Company; interest payments; payments for military equipment procurement; and
NATO expenses) of the ordinary state budget as published monthly on the official
website of the General Accounting Office of the Ministry of Finance, and in line with
the corresponding line items established in the ordinary state budget.

 The cash balance of the investment state budget. The cash balance of the
investment state budget will be measured from above the line, based on investment
budget revenues minus investment budget expenditures of the investment state budget
as published monthly on the official website of the General Accounting Office of the
Ministry of Finance, and in line with the corresponding line items established in the
investment state budget.

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 Net financial assets of local authorities are defined as financial assets minus
financial liabilities of local authorities. Financial assets include deposits of local
authorities in the Bank of Greece and deposits of local authorities in the commercial
domestic banking sector. Deposits will be measured at face value excluding accrued
interest in line with recording for monetary survey data. Financial liabilities include
short and long term loans from the domestic banking system to local authorities,
measured at face value, consistent with recording for monetary survey data.

 Net financial assets of social security funds are defined as financial assets minus
financial liabilities of social security funds.

o Financial assets include

 Deposits of social security funds in the Bank of Greece and direct
deposits of social security funds in the domestic commercial banking
system and indirect deposits held by the IKA mutual fund. Deposits
are measured at face value excluding accrued interest, consistent with
reporting requirements for monetary survey data.

 Holdings of direct shares or indirect shares (through the IKA mutual
fund), held by social security funds quoted on the Athens Stock
Exchange. Holdings of shares will be measured at the end-of-month
market value.

 Direct or indirect holdings of Mutual Fund units issued by Greek
management companies (other than the IKA mutual fund). Holdings of
holdings will be measured at the end-of-month market value.

 Holdings of central government bonds, including short and long-term
securities issued domestically, long-term securities issued abroad
operated from Bank of Greece accounts, and indirect holdings through
the IKA mutual fund. Holdings will be measured at nominal value.

o Financial liabilities include the short and long term loans from the domestic
banking system to the social security funds, measured consistently with
monetary survey data.

. Adjustments. For the purpose of the program, the primary expenditure of the central
government that is monitored excludes payments related to bank support, when carried out
under the program’s banking sector support and restructuring strategy. Costs that may be
excluded from the balance include loans to financial institutions and investments in equity of
financial institutions (requited recapitalization); unrequited recapitalization; and purchases of
troubled assets. However, any financial operation by central government to support banks,

76

IMF, European Commission and ECB staff. Further, this performance criterion will be
adjusted upward for any possible revenue overperformance in the central government against
the current projection as indicated below:

. Central government revenue (Cumulative from January 1, 2010)

. June 2010: €25,056 million

. September 2010: €41,232 million

. December 2010: €58,382 million.

. Supporting material.

 Data on cash balances of the ordinary and state budgets will be provided to the
European Commission, ECB and IMF by the General Accounting Office in the
Ministry of Finance within three weeks after the end of the month. Data will include
detailed information on revenue and expenditure items, in line with monthly reports
that are published since January 2010 on the official website of the Ministry of
Finance.

 Data on net financial assets of local authorities and social security funds will be
provided to the IMF, European Commission and ECB by the Statistics Department of
the Bank of Greece within four weeks after the end of the month.

B. Ceiling of State Budget Primary Spending (Performance Criterion)

. Definition: The state budget primary spending consists of state budget spending
(spending of the ordinary state budget plus spending of the investment budget) minus interest
expenditures paid by the state budget, in line with the definitions provided above. Primary
expenditure of the central government that is monitored for the PC excludes any cash
payments related to bank restructuring, when carried out under the program’s banking sector
restructuring strategy. Costs that may be excluded from the balance include loans to financial
institutions and investments in equity of financial institutions (requited recapitalization);
unrequited recapitalization; and purchase of troubled assets. However, any financial
operation by central or general government to support banks, including the issuance of
guarantees or provision of liquidity, will be immediately reported to European Commission,
ECB and IMF staff.

. Supporting material. The General Accounting Office of the Ministry of Finance will
provide monthly expenditure data of the ordinary and investment state budget, as defined
above.

77

C. Non-accumulation of Domestic Arrears by the General Government
(Continuous Indicative Target)

Definition. For the purpose of the program, domestic arrears are defined as accounts payable
to domestic suppliers past due date by 90 days. Data will be provided within four weeks after
the end of the month. The stock of arrears as of end-April stood at 5.6 billion euro.

. Supporting material. The Ministry of Finance will provide data on monthly
expenditure arrears of the general government, as defined above. Data will be provided
within four weeks after the end of the month.

D. Ceiling on the Overall Stock of Central Government Debt (Performance Criterion)

. Definition. The overall stock of central government debt will refer to debt that
corresponds to the activities of the state budget and will be defined for the purposes of the
program as the total outstanding gross debt liabilities of the central government. It will
include, but not be limited to, liabilities in the form of securities and loans. The program
exchange rate will apply to all non-euro denominated debt. For the purposes of the program,
the ceiling on the stock of central government debt will exclude debt arising from payments
for bank restructuring, when carried out under the program’s banking sector restructuring
strategy. This includes loans to financial institutions and investments in equity of financial
institutions (requited recapitalization); unrequited recapitalization; and purchase of troubled
assets. However, any financial operation by the central government to support banks,
IMF, European Commission and ECB staff.

. Adjusters. The ceiling on the overall stock of central government debt will be
adjusted upward (downward) by the amount of any upward (downward) revision to the stock
of end-December 2009 central government debt.

. Supporting material. Data on the total stock of central government debt will be
provided to the European Commission, ECB and IMF staff by the General Accounting Office
consistent with the debt published in the public debt bulletin no later than 30 days after the
end of each month.

E. Ceiling on New Central Government Guarantees (Performance Criterion)

. Definition. The ceiling on the new central government guarantees shall exclude
guarantees to support banks and exclude guarantees related to EIB financed loans.

. Supporting material. All new central government guarantees will be reported in
detail, identifying amounts and beneficiaries. The General Accounting Office will provide
the data on a monthly basis within three weeks after the end of each month.

78

F. Non-accumulation of External Debt Payments Arrears by the General Government
(Continuous Performance Criteria)

. Definition. For the purposes of the program, an external debt payment arrear will be
defined as a payment on debt contracted or guaranteed by the general government, which has
not been made within seven days after falling due. The performance criterion will apply on a
continuous basis throughout the program period.

. Supporting material. The stock of external arrears of the general government system
will be provided by the General Accounting Office with a lag of not more than seven days
after the test date.

G. Overall Monitoring and Reporting Requirements

. Performance under the program will be monitored from data supplied to the EC, ECB
and IMF by the Ministry of Finance, the General Accounting Office, and Bank of Greece.
The authorities will transmit promptly to the IMF, EC and ECB staff any data revisions in a
timely manner.

H. Monitoring of Structural Benchmarks

. Pension reform. The government has initiated a pension reform which should be
adopted by the end of September 2010. In preparing this reform, the authorities will consult
with EC/IMF/ECB experts and the National Actuarial Authority will produce a report to
assess whether the parameters of the new system significantly strengthen long-term actuarial
balance. The draft law for the new and actuarially-balanced system should be available by
the end of June, 2010.

. Expectations for the Pension Reform. The reform will:

 Merge pension funds in three funds by 2018.

 Introduce a new system to strengthen the link between contributions and benefits,
with uniform rules that will apply pro-rata (as a sum of the accrued rights under the
old system and the benefits accrued under the new system) to all current and future
workers. Workers retiring in and after 2015 will collect benefits from this system.

 Set the normal retirement to age 65 across all systems, including for those insured
before 1993 and women in the public sector, by 2015. After 2020, the normal
retirement age will increase in line with life expectancy.

79

 Restrict early retirement to age 60 by 2011, including for those insured before 1993,
workers in heavy and arduous professions, and those with 35 or more years of
contributions.

 Index benefits to changes in the consumer price index, starting in 2014 (benefits will
be frozen 2010–2013).

 Include a means-tested pension for all citizens older than the normal retirement age so
that an important safety net is provided, consistent with fiscal sustainability.

 Lengthens the years over which the pensionable earnings base is calculated from the
top 5 out of the last 10 years of earnings to lifetime earnings.

 Review conditions for disability pensions by the end of March of 2011 and introduce
stricter conditions for eligibility by December of 2011, including periodic
re-examination of those with disability pensions.

80

INTERNATIONAL MONETARY FUND

Greece—Assessment of the Risks to the Fund and the Fund’s Liquidity Position

Prepared by the Finance and Strategy, Policy, and Review Departments

(In consultation with other Departments)

Approved by Thomas Krueger and Martin Mühleisen

May 6, 2010

This note assesses the risks to the Fund arising from the proposed Stand-By
Arrangement (SBA) for Greece and its effects on the Fund’s liquidity, in accordance
with the policy on exceptional access.9 The authorities are requesting a three-year SBA with
access of SDR 26.43 billion (3,212 percent of quota or 2,399 percent of post second-round
quota). The arrangement would have a frontloaded purchase schedule with a first purchase of
SDR 4.81 billion (584 percent of quota) upon approval, followed by twelve purchases of
varying amounts as shown in Table 1. Access during the first year would reach almost
1,550 percent of quota and the last purchase under the arrangement would be available in
May 2013.

Table 1. Greece: Proposed SBA—Access and Phasing
Percent of quota
Availability Date 1/ SDR mn Purchase Cumulative

2010 May (approval) 4,805.9 583.9 583.9
August 2,162.7 262.8 846.7
November 2,162.7 262.8 1,109.5
2011 February 3,604.5 438.0 1,547.5
May 2,883.6 350.4 1,897.9
August 1,922.4 233.6 2,131.4
November 1,201.5 146.0 2,277.4
2012 February 2,403.0 292.0 2,569.4
May 1,441.8 175.2 2,744.6
August 1,441.8 175.2 2,919.8
November 480.6 58.4 2,978.2
2013 February 1,441.8 175.2 3,153.4
April 480.6 58.4 3,211.8
Total 26,432.9 3,211.8 3,211.8

Source: Finance Department.
1/ Starting August 30, 2010, purchases will depend on the completion of a review.

9
See IMF Concludes Discussion on Access Policy in the Context of Capital Account Crises; and Review of
Access Policies in the Credit Tranches and the Extended Fund Facility. Public Information Notice (PIN)
No. 03/37; available via the internet: http://www.imf.org/external/np/sec/pn/2003/pn0337.htm.

81

VII. BACKGROUND

. Greece made purchases from the Fund between 1974 and 1976 under different
facilities. Fund credit, which totaled SDR 386 million, was used to finance short-term
balance of payments financing gaps due to rising energy prices and falling Greek exports,
and to facilitate counter-cyclical fiscal and monetary policies as the authorities’ pursued a
more flexible exchange rate regime and implemented wage restraint to improve external
competitiveness. All obligations to the Fund have been met in a timely manner.

. Greece’s external debt, mostly denominated in Euros, is the highest of recent
exceptional access cases, with public sector debt accounting for the largest share. At
end-2009, Greece’s total external debt stood at 170 percent of GDP, of which almost
65 percent was public sector debt (Table 2). Greece’s total external and public external debts
as ratios of GDP are the highest among recent exceptional access cases (Figure 1, Panels A
and B).10 Private sector external debt, at 59 percent of GDP in 2009, has doubled relative to
GDP since 2004 and is predominantly short-term. At end-2009, Greece’s total stock of short-
term external debt stood at approximately 60 percent of GDP, of which about a third are
liabilities of the Bank of Greece to the ECB and the rest mostly consists of Greek banks’
liabilities.

Table 2. Greece: Total External Debt, 2005–2009 1/

Proj.
2004 2005 2006 2007 2008 2009 2010 2/

(In Billions of Euros)
Total External Debt 186 223 253 309 363 404 427

Public 131 152 163 188 227 264 329
Short-term 3/ 7 7 8 12 41 51 84
Long-term 125 145 154 176 186 213 245
Private 55 70 90 121 135 140 98
Short-term 21 28 35 56 71 93 51
Long-term 33 42 55 64 64 47 46

(In Percent of GDP)
Total External Debt 100.1 114.1 120.2 136.3 151.6 170.0 185.0

Public 70.6 78.0 77.4 83.0 95.1 111.1 142.7
Short-term 3/ 3.6 3.7 4.0 5.3 17.1 21.4 36.5
Long-term 67.1 74.3 73.4 77.7 78.0 89.6 106.2
Private 29.5 36.1 42.8 53.3 56.6 59.0 42.4
Short-term 11.4 14.4 16.6 24.8 29.9 39.2 22.3
Long-term 18.0 21.7 26.2 28.5 26.7 19.8 20.1

Memorandum items:
Short-term external debt (billions of euros) 28 35 43 68 112 144 136
Short-term external debt (% of GDP) 15.0 18.1 20.6 30.1 46.9 60.6 58.8
Total public sector debt (% of GDP) 98.6 100.0 97.1 95.6 99.2 115.2 133.3

Source: Greek authorities and IMF staff estimates.
1/ End of year unless otherwise indicated.
2/ Staff projections for end-2010.
3/ Includes short-term liabilities of the Bank of Greece to the Eurosystem.

10
Throughout the paper recent exceptional access cases refer to arrangements since September 2008.

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