News update August 2013

Public management, public finance and economic developments OECD 27 February 2013, OECD Sovereign Borrowing Outlook 2013 Chapter on "Sovereign debt restructuring in Greece" Greece signed its first Economic Adjustment Programme (EAP) on 12 May 2010. The Programme covers the period May 2010-June 2013. Financing comes from two sources: a) bilateral support from euro area member states (EUR 80 billion) and b) the IMF (EUR 30 billion). http://www.oecd-ilibrary.org/governance/oecd-sovereign-borrowing-outlook-2013/sovereigndebt-restructuring-in-greece_sov_b_outlk-2013-11-en Overview on debt restructuring. Describes in short the First Economic Adjustment Programme (EAP), the Private Sector Involvement (PSI) Strategy (Bond Exchange Operation), the Second adjustment programme and debt buyback, and Official funding and issuance of short-term debt. 29 July 2013, Greece: Reform of Social Welfare Programmes This review provides an analytical perspective of the current situation, including the construction of a database, in order to help the Greek government define reforms to improve the effectiveness, efficiency and fairness of selected social programmes. The review identifies gaps and overlaps in social protection, and highlights areas where there is room for significant efficiency gains, in order to support informed and concrete decisions by the Greek government on where budgetary savings can most appropriately be made, taking into account the balance between societal groups and the need to maintain social cohesion. http://www.oecd-ilibrary.org/governance/greece-social-welfare-programmes_9789264196490-en contains a chapter on "Towards more effective system governance in Greece" This chapter considers the governance of social welfare in Greece. It starts with an examination of the current central governance structures and ministry responsibilities. It then considers the current structures and governance of social security funds, with reference to information and communication technology (ICT) systems, human resources, control of fraud and the collection of contributions. It also considers the reporting and accounting obligations of social security funds, and the provision of benefits on the ground. Recent institutional developments have been only briefly referenced in this chapter. See Annex B for an overview of recent developments. IMF The IMF-reports are mainly focused on economic developments, fiscal adjustments and policy (incl. tax administration), debt sustainability and debt reduction. 16 January 2013, Press release: IMF Executive Board Completes First and Second Reviews Under Extended Fund Facility Arrangement for Greece and Approves €3.24 Billion Disbursement The completion of the review enables the disbursement of an amount equivalent to SDR 2.798 billion (about €3.24 billion or US$4.3 billion), bringing total Fund disbursements under the EFF arrangement to an amount equivalent to SDR 4.197 billion (about €4.86 billion or US$6.46 billion). In completing the review, the Executive Board also approved waivers of applicability of

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end-December 2012 performance criteria, modified performance criteria, and rephased disbursements under the arrangement. http://www.imf.org/external/np/sec/pr/2013/pr1313.htm + Interview on Greece (short summary of the Staff report) In this interview, the IMF’s Poul Thomsen discusses the outlook for Greece, what it will take for the program to succeed, and what the key risks are. with http://www.imf.org/external/pubs/ft/survey/so/2013/int011813a.htm + 18 January 2013, Staff report (full text) Greece: First and Second Reviews Under the Extended Arrangement Under the Extended Fund Facility, Request for Waiver of Applicability, Modification of Performance Criteria, and Rephasing of Access http://www.imf.org/external/pubs/cat/longres.aspx?sk=40256.0 Appendix VII (Greece - memorandum of understanding on specific economic policy conditionality) contains a large section on the health care system 2.9 Modernising the health care system (p.189-197) The Government continues to implement the comprehensive health sector reform with the objective of stabilising public health expenditure at, or below 6, percent of GDP, while maintaining universal access and improving the quality of care delivery. Policy measures include reducing the fragmented governance structure, reinforcing and integrating the primary healthcare network, streamlining the hospital network, strengthening central procurement and developing a strong monitoring and assessment capability and e-health capacity. 5 June 2013, Public Information Notice: IMF Executive Board Concludes 2013 Article IV Consultation, Completes Third Review of the Extended Fund Facility (EFF), and Discusses Ex Post Evaluation of 2010 Stand-By Arrangement (SBA) with Greece http://www.imf.org/external/np/sec/pn/2013/pn1364.htm (short summary of the reports) + 5 June 2013, IMF Survey : Greece Makes Progress, But More Effort Needed to Restore Growth Poul Thomsen spoke to IMF Survey on the publication of the Fund’s annual health check of the Greek economy, which was approved by the IMF’s Executive Board on May 31, together with the third review of the IMF’s €28 billion loan under the Extended Fund Facility. http://www.imf.org/external/pubs/ft/survey/so/2013/car060513a.htm (short summary of the reports) 5 June 2013, Greece: Third Review Under the Extended Arrangement Under the Extended Fund Facility - Staff Report Series: Country Report No. 13/153 http://www.imf.org/external/pubs/cat/longres.aspx?sk=40636.0 p.136

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"2. In parallel with the ERP project GAO will engage in discussions with the Hellenic Court of Audit (HCA) on further streamlining the pre-audit process by the HCA. GAO will propose to the HCA an increase in the ceilings for mandatory pre-audits, and below the ceiling the introduction of risk-based pre-audits rather than 100% pre-audit. GAO will ask the HCA to develop an action plan for inclusion in the economic adjustment program (June 2013)"

+ Appendix VII (Memorandum of Understanding on Specific Economic Policy Conditionality) contains an updated “Section 2.10 Modernising the health care system” (p.145-150) 5 June 2013, Greece: 2013 Article IV Consultation Series: Country Report No. 13/154 http://www.imf.org/external/pubs/cat/longres.aspx?sk=40637.0 Mainly on fiscal adjustments, debt sustainability and debt reduction 5 June 2013, Greece: Ex Post Evaluation of Exceptional Access Under the 2010 Stand-By Arrangement Series: Country Report No. 13/156 http://www.imf.org/external/pubs/cat/longres.aspx?sk=40639.0 Lessons learned report. Mainly on fiscal adjustments, debt sustainability and debt reduction 5 June 2013, Greece: Selected Issues Series: Country Report No. 13/155 http://www.imf.org/external/pubs/cat/longres.aspx?sk=40638.0 pages 18-39 REVENUE ADMINISTRATION AND FISCAL CONSOLIDATION1 Greece has undertaken a very strong fiscal effort. During 2009–12, the primary balance improved by over 9 percent of GDP, or 15 percent in cyclically-adjusted terms. Further improvement of some 4¼ percent of GDP is needed over 2013–16 in the cyclicallyadjusted primary balance to meet medium-term targets, making this one of the largest fiscal adjustment programs to date. This effort has been achieved primarily by raising tax rates to high levels and reducing wages, pensions, and other spending. Broadening the tax base and improving tax collection are also essential pillars on which some progress has been made and on which more is needed to ensure durability, fairness, and high quality of the adjustment. This paper describes the problems, progress to date, and agenda for work in Greece’s revenue administration. + News item: Greek taxmen may be dodging taxes, too (EU Observer 1 March 2013) Tax inspectors in Greece are underpaid, working in poor conditions and some 130 of them have personal bank accounts abroad - possibly indicating tax evasion, according to an internal report by the IMF and EU. http://euobserver.com/economic/119249 29 July 2013, Press Release: IMF Completes Fourth Review Under Extended Fund Facility Arrangement for Greece, Approves €1.72 Billion Disbursement http://www.imf.org/external/np/sec/pr/2013/pr13280.htm +

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31 July 2013, Greece: Fourth Review Under the Extended Arrangement Under the Extended Fund Facility - Staff Report Series: Country Report No. 13/241 http://www.imf.org/external/pubs/cat/longres.aspx?sk=40838.0 p.18 "29. The clearance of arrears has been slow and needs to be accelerated (MEFP ¶21). According to the program definition, the total stock of general government arrears has only fallen by €1.4 billion, from €7.6 billion at end-2012 to €6.2 billion at end-May 2013. This compares with a target stock of arrears at end-June 2013 of €3 billion. Part of the shortfall stems from roughly €700 million accumulation in arrears, over half of which is in the Social Budget. Also, progress in arrears clearance has been obstructed by legal and procedural obstacles: (i) objections to compliance issues in arrears verification by the Hellenic Court of Audit (HCA); (ii) lack of signed memoranda for arrears clearance by some SSFs; and (iii) delays in the adoption of LG budgets. All of these obstacles have recently been addressed. 

Expenditure arrears. The process will speed up once water companies, much like hospitals earlier in the year, are allowed to receive direct payments on arrears owed to them, accounting for about €0.7 billion of the outstanding stock of arrears. A number of actions have been planned to address delays in payment processes—a major cause of continuing accumulation of arrears—such as mandatory deadlines for each stage, removing the role of local tax offices inthe payment process, IT and administrative improvements, and a review of the legal framework. The HCA will also review how the effectiveness of its role in this process can be enhanced. Finally, preliminary audits of the clearance of arrears of EOPYY and five other SSFs will identify weaknesses that hamper accurate reporting and slow down arrears repayment. ..."

+ p.30-31 “Box 2. Health Spending Overruns Greece has reduced health care expenditures significantly since 2010, to well below the average for EU countries, supported by the creation of a unified public health care fund in 2012. However, further reductions planned for 2013 have fallen short, requiring an interim claw-back mechanism followed by improvements in underlying systems and controls to stay within the health care budget. Going forward, there is limited scope for additional fiscal savings from public health spending. …”

+ p.88 "By end-December, the Hellenic Court of Auditors (HCA) and GAO will produce a joint note on the role and scope for streamlining of the HCA’s ex ante audits in financial control following the review of the effectiveness of the HCA’s ex-post audit pilot scheme expected in November with the assistance of the Dutch Court of Audit."

+ Appendix V (Memorandum of Understanding on Specific Economic Policy Conditionality) contains an updated “Section 2.10 Modernising the health care system” (p.152-157)

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European Commission / Council of the European Union EU Task Force for Greece 29 April 2013, Fourth Quarterly Report: Support for growth and jobs in Greece The Commission's Task Force for Greece (TFGR) has made steady progress in assisting the Greek authorities, in a spirit of solidarity, to help implement a wide range of reforms agreed in the context of the economic adjustment programme for Greece and to maximise the use of EU Structural Funds. http://europa.eu/rapid/press-release_IP-13-377_en.htm + Memo on Task Force for Greece: Progress on technical assistance http://europa.eu/rapid/press-release_MEMO-13-389_en.htm + Full report: April 2013, Fourth Quarterly Report http://ec.europa.eu/commission_2010-2014/president/pdf/qr4_en.pdf p.32 "5.3. Hellenic Court of Audit: Implementation of the Road Map for technical assistance in the field of external audit, agreed in 2012 between the Hellenic Court of Audit (HCA), TFGR, IMF and several European Supreme Audit Institutions, is well under way. This effort is well supported by the Netherlands Court of Audit as domain leader, in cooperation with Belgian, French, German and European Courts of Audit. Progress has been made in the three areas covered by the Road Map. These include: annual audit programme; capacity building for financial audits; and relations of HCA with Parliament and other relevant stakeholders. Of special relevance was a strategic workshop organized in Athens in January 2013 on the relations with Parliament. This confirmed the interest of key stakeholders within the Greek Parliament for an enhanced cooperation with Hellenic Court of Audit."

Short update on Second Economic Adjustment Programme for Greece: source: http://ec.europa.eu/economy_finance/assistance_eu_ms/greek_loan_facility/index_en.htm

".... On 12 December 2012, following the finalisation of the relevant national procedures and after having reviewed the outcome of the debt buy back operation conducted by Greece, the Eurogroup approved the second instalment under the Second Economic Adjustment Programme for Greece. On that basis, Member States authorised the EFSF to release the next instalment for a total amount of €49.1 billion. The disbursement would be made in several tranches. €34.3 billion was paid out to Greece in December 2012. The remaining amount would be disbursed in the first quarter of 2013. First, a further amount of €7.2 billion would be made available to cover bank recapitalization and resolution costs. Second, funds to cover budgetary financing would be disbursed in three sub-tranches, linked to the implementation of specific Memorandum of Understanding milestones agreed

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by the Troika. The next tranches of €2.0 billion, €2.8 billion and €2.8 billion have been paid out on 31 January 2013, 28 February 2013 and 3 May 2013, following the endorsement by euro area Member States of the Commission's assessment of achievement of the January, February and March milestones respectively.

On 15 April 2013, staff teams from the European Commission, the ECB and the IMF concluded their mission to Greece in the context of the second review of the second adjustment programme. The mission reached staff-level agreement with the authorities on the economic and financial policies needed to ensure the program remains on track to achieve its objectives. On 13 May 2013, the Eurogroup concluded that all necessary elements were in place for Member States to finalise the required national procedures for the approval of the next instalment, which would be disbursed in two sub-tranches. Following the completion of national procedures and the full implementation of the relevant prior actions, the first sub-tranche of € 4.2bn was approved by the EWG and EFSF Board of Directors, and was disbursed on 17 May 2013. The second sub-tranche amounting to € 3.3bn was disbursed on 25 June 2013, following the approval by the EWG and Board of Directors on 13 June 2013. The approval was based on the relevant recommendation made by the European Commission staff, in liaison with ECB and IMF staff, after their assessment of the implementation of the three specific MoU milestones.

The third review of the Second Adjustment Programme was concluded on 8 July 2013, with the staff teams reaching a staff-level agreement, ad referendum, with the Greek authorities. On the same day, the Eurogroup noted with satisfaction that the programme was broadly on track and mandated the EWG and EFSF Board of Directors to approve the next EFSF instalment of €3.0 bn which would take place in two sub-tranches. At the same time, the Eurogroup mandated the EWG and the EFSF to also approve the disbursement of an amount of €2.0bn, equivalent to the income on the SMP portfolio accruing to euro area national central banks, to Greece’s segregated account, to take place in a similar way in two sub-tranches. The first sub-tranche of €2.5bn was approved on 26 July by the EWG and the EFSF Board following the full implementation of the prior actions; the amount was disbursed on 31 July 2013, after Member States finalised their relevant national procedures. The sub-tranche of €1.5bn income on the SMP portfolio was approved and paid at the same occasion. ..."

Short reports on Greece's Compliance with the Milestones for the disbursement of sub-tranches January – June 2013: 

January 2013 sub-tranche, 14 January 2013 http://ec.europa.eu/economy_finance/assistance_eu_ms/greek_loan_facility/pdf/reportco mpliancedisbursement-012013_en.pdf

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February 2013 sub-tranche, 19 February 2013 http://ec.europa.eu/economy_finance/assistance_eu_ms/greek_loan_facility/pdf/reportco mpliancedisbursement-022013_en.pdf

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March 2013 sub-tranche, 26 April 2013 http://ec.europa.eu/economy_finance/assistance_eu_ms/greek_loan_facility/pdf/reportco mpliancedisbursement-032013_en.pdf

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June 2013 sub-tranche, 12 June 2013 http://ec.europa.eu/economy_finance/assistance_eu_ms/greek_loan_facility/pdf/reportco mpliancedisbursement-062013_en.pdf

May 2013, The Second Economic Adjustment Programme for Greece – Second Review This report provides an assessment of the progress made by Greece with respect to its Second Economic Adjustment Programme, based on the findings of a two-part joint Commission/ECB/IMF mission to Athens between 27 February and 11 April 2013. The report examines current macroeconomic, financial and fiscal developments, assesses compliance with programme conditionality and makes a detailed assessment of the policy programme up to 2016. http://ec.europa.eu/economy_finance/publications/occasional_paper/2013/op148_en.htm Parts of this report are comparable to the third IMF review. Some parts may be of interest: Chapter 3.3 on Structural reforms with budgetary relevance (p.25 ..) Especially 3.3.6. Modernising the healthcare system (p.35-36) 8 July 2013, Eurogroup statement on Greece The Eurogroup has been informed on the outcome of the third review mission under the second macroeconomic adjustment programme for Greece and welcomes the staff‐level agreement between Greece and the Troika on the updated policy conditionality underlying the programme http://eurozone.europa.eu/newsroom/news/2013/07/eurogroup-statement-on-greece/ + The Second Economic Adjustment Programme for Greece – Third Review This report provides an assessment of the progress made by Greece with respect to its Second Economic Adjustment Programme, based on the findings of a two-part joint Commission/ECB/IMF mission to Athens between 4-19 June and 1-7 July 2013. The report examines current macroeconomic, financial and fiscal developments and assesses compliance with programme conditionality. http://ec.europa.eu/economy_finance/publications/occasional_paper/2013/op159_en.htm Parts of this report are comparable to the fourth IMF review. Some parts may be of interest: Chapter 3.3. Fiscal structural reforms (p.25 ...) Especially 3.3.7. Modernising the healthcare system (p.33-35) + p.31 "43. Compliance with the now-transposed Late Payment Directive requires proceeding urgently towards streamlining the payment process, within the scope of a wider reform of PFM already planned. Implementation of this Directive requires the payment of invoices within 30 days in principle, or 60 days in exceptional cases. Existing payment processes are encumbered by excessive layers of control, hampered by a lack of automation and are extremely slow. The reasons are the absence of appropriate legislation to permit automated work processes and work processes that

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have not been modernized to reflect technological change and lessons learned from advanced country experiences. Despite the efforts made over the past years and the technical assistance provided so far, a permanent solution (so called ERP project) is likely to take a number of years to be completed whereas there is a need for an interim solution to meet the 30-day target by the end of 2013. The working group established in General Accounting Office (GAO) has made progress and steps have been implemented or are in the process of being implemented. A circular has been issued to all Fiscal Audit Offices (FAOs) by the GAO instructing them that all payment requests must be processed within 20 days. A Review and redesign of the instructions to General Directorates of Financial Services (GDFS), from the GAO and the Hellenic Court of Audit (HCA) Commissioners to speed up the payment process is being considered, including increasing the ceiling on invoices that need to be sent to the HCA for preapproval. The current ceiling of EUR 15,000 was set last year and the working group is recommending an additional increase in the ceiling. Data provided by the General Secretary of Public Works showed that approximately 30% of invoices are above the 15,000 threshold, thereby requiring HCA approval, which can delay the process by between 5 to 10 days. The HCA has implemented incentives to reduce this to 5 days and is reviewing the process to see if the 5 day target can be reduced. Another crucial measure to shorten the payment process is the shift of responsibility for payment execution from the tax offices (DOYs) to the FAOs. An amendment to existing legislation has been enacted for this purpose. The objective is for the shift to occur as of January 2014, but the necessary changes to existing IT systems and work processes have not yet been fully analysed to ensure that this deadline is feasible or achievable."

+ p.57 "In parallel with the ERP project, GAO will engage in discussions with the HCA on further streamlining the pre-audit process by the HCA. GAO will propose to the HCA an increase in the ceilings for mandatory pre-audits, and below the ceiling the introduction of risk-based preaudits rather than 100% pre-audit. GAO will ask the HCA to develop an action plan for inclusion in the economic adjustment program. ... In the revised version of MoU the wording was changed and a new completion deadline was set for October 2013... New deadline December 2013"

+ p.115 "By end-December, the Hellenic Court of Auditors (HCA) and GAO will produce a joint note on the role and scope for streamlining of the HCA’s ex ante audits in financial control following the review of the effectiveness of the HCA’s ex-post audit pilot scheme expected in November with the assistance of the Dutch Court of Audit."

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The Hellenic Observatory (European Institute, London School of Economics & Political Science) GreeSE Paper 66 January 2013, Rebuilding Eurozone’s Ground Zero - A review of the Greek economic crisis Chrysoloras, Nikos Despite widespread criticism on its performance, all indicators demonstrate that Greece has achieved impressive fiscal and structural adjustment since its de facto bankruptcy, in May 2010. However, serious implementation problems, the pace and sheer volume of the contractionary measures adopted over the last years, as well as the fact that the burden was unevenly shared, may lead to a social and political crisis, which could threaten the very survival of democracy in the country. Such catastrophe would destabilize the Balkan region and the Eurozone, while it would deal a huge blow to the European unification project. This paper examines the reasons and events that led to Greece’s economic implosion, describes the current predicaments of the country, and – most importantly – explores suggestions for rebuilding the Greek economy on more solid foundations, without tearing society apart in the process. http://www2.lse.ac.uk/europeanInstitute/research/hellenicObservatory/CMS%20pdf/Publications/ GreeSE/GreeSE-No66.pdf Max Planck Institute for the Study of Societies Diagnosis, Treatment, and Effects of the Crisis in Greece: A “Special Case” or a “Test Case”? Maria Markantonatou MPIfG Discussion Paper 13/3 February 2013 This paper discusses the management of the crisis in Greece, arguing that it was based on a series of diagnoses that justified fiscal discipline by stigmatizing the Greek economy and society, and that it had a narrow understanding of the reasons for Greece’s deteriorating competitiveness. I begin by critically examining a series of diagnoses that take a “rent-seeking” approach as a common starting point. I then argue that the chosen treatment of “internal devaluation” was based on questionable perceptions of labor costs and public expenditure during the pre-crisis period in Greece, a treatment which then aggravated recession. I follow up with an overview of the socio-political consequences of the crisis (unemployment, poverty, social deregulation, rise of neofascism). In conclusion, I point to the premises of methodological nationalism, both in neoliberal and neoKeynesian understandings of the crisis. Such views disregard the fact that states have prioritized the strengthening of the global financial system and its rescue in times of crisis, as well as the process of a deepening neoliberalism within the EU – even at a constitutional level through the Fiscal Compact – in which management of the Greek crisis has been inscribed. http://www.mpifg.de/pu/mpifg_dp/dp13-3.pdf

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Integrity Article The Determinants of the Shadow Economy: The Case of Greece George Manolas, Kostas Rontos, George Sfakianakis, Ioannis Vavouras in: International Journal of Criminology and Sociological Theory, Vol. 6, No. 1, January 2013, 1036-1047 This paper aims at assessing the relative importance of various factors as key determinants of the size of the shadow economy in a sample of OECD countries. Using panel data for a group of 19 countries for the 2003 – 2008 period, we find that the quality of governance, the regulatory framework in the product, labor and credit markets and the tax burden both in the sense of the direct cost on entrepreneurial activity and the cost of compliance to the tax administration framework, are the most important factors affecting the part of the economic activity that takes place outside the official sector, that is the shadow or underground economy. These results are used to evaluate the potential gains Greece could obtain, in the case it could converge to the best practice or even to the average levels of the determining factors of the rest of the OECD countries. http://pi.library.yorku.ca/ojs/index.php/ijcst/article/viewFile/36330/33047 Transparency International Greece 3 July 2013, Launch of 2012 National Survey of Corruption in Greece During 2012, the extent of petty corruption in Greece was reduced in both Public and Private Sector. According to the 2012 National Survey on Corruption in Greece, there is a significant reduction in: 

the amount of bribes in “fakelaki” (little bribery envelopes). For the first time, since the beginning of Survey, the estimated total cost of petty corruption does not exceed half a billion euro (estimated in €420mil versus €554mil for 2011)

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the number of corruption incidents reported by Greek households, given that the appropriate percentage has dropped down by 1,6% (8,6% for 2012 versus 10,2% for 2011).

Press release: http://en.transparency.gr/Press.aspx?page=34&code=PressRelease&article=358 + Summary National Survey on Corruption in Greece 2012: http://en.transparency.gr/download.aspx?file=/Uploads/File/NSCG2012_EN.pdf Bank of Greece Audits and tax offenders: recent evidence from Greece Working paper 152, February 2013; Athanasios O. Tagkalakis Using a novel dataset on summer 2012 tax inspections by the Hellenic Ministry of Finance in tourist and high economic activity areas in 13 regions in Greece we found that the intensification of tax audits can induce tax compliance. This finding is very important at the current juncture for Greece as it shows that improvement in tax administration and tax enforcement mechanisms can deter tax evasion, increase tax revenues and contribute to the on-going fiscal consolidation effort. http://www.bankofgreece.gr/BogEkdoseis/Paper2013152.pdf

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