Annexes to COM(2020)546 - Greece Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the EU - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2020)546 - Greece Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the EU. |
|---|---|
| document | COM(2020)546  |
| date | May 20, 2020 |
Since Greece was exempt from submitting Stability Programmes while it was subject to a macroeconomic adjustment programme (‘the programme’), the Greek authorities have not established a medium-term budgetary objective for 2019. In spring 2018, the Council issued no country-specific recommendation to Greece in the context of the European Semester because pursuant to Article 12 of Regulation (EU) No 472/20132 Greece was exempt the monitoring and assessment under the European Semester at that time since it was under the programme. Under those circumstances, the assessment of year 2019 is conducted in the absence of a medium-term budgetary objective, taking into account the factors mentioned above, the primary surplus target recommended by the Council and monitored under the enhanced surveillance procedure, as well as the structural budget balance for 2019.
Data notified by the Greek authorities on 31 March 2020 and subsequently validated by Eurostat3 confirms a general government primary surplus of 4.4% of GDP in 2019, which is equivalent to a primary surplus monitored under the enhanced surveillance procedure4 of 3.5% of GDP. The budgetary outcome was thus compliant with Greece’s commitments monitored under the enhanced surveillance procedure. The structural balance in 2019 remained in high surplus, reaching 2.8%. Compliance with its fiscal requirements under the enhanced surveillance procedure is a mitigating factor for the assessment of Greece’s prima facie non-compliance with the debt criterion in 2019.
In view of the ongoing pandemic, the authorities have adopted fiscal measures of an unprecedented amount to address the COVID-19 crisis and to support the economy. The overall size of the measures is estimated to reach up to 10.5% of GDP with an estimated impact of 3.7% of GDP on the general government deficit. The majority of the measures aim to support companies and their employees who are affected by the COVID-19 pandemic either through a direct suspension of the companies’ operation or the general deterioration of economic activity due to the containment measures.
Under the current circumstances, uncertainty about the fiscal and macroeconomic outlook is significantly higher than usual. At this stage, only very preliminary data were available to confirm the magnitude and the severity of the economic and fiscal hit.
4.4. Medium-term government debt position
Government debt decreased between 2016 and 2017 from 178.5% to 176.2% of GDP, and then increased markedly in 2018 to 181.2% of GDP. That increase was due to the final
3 https://ec.europa.eu/eurostat/documents/2995521/10294648/2-22042020-AP-EN.pdf/6c8f0ef4-6221-1094-fef7-a07764b0369f
4 The programme definition of the primary balance excludes the one-off cost of bank recapitalisation, SMP and ANFA revenues and part of the privatisation proceeds. See Commission Opinion of 21.11.2018 on the Draft Budgetary Plan of Greece {SWD(2018) 516 final} for the definition.
disbursement under the programme in 2018, which contributed to the build-up of Greece’s significant cash buffer. The cumulated high general government surpluses recorded over the same period as well as the nominal GDP growth would have otherwise resulted in the steadily declining debt path. In 2019, the public debt-to-GDP ratio declined to 176.6%, reflecting the high general government headline surplus and the nominal GDP growth and the debt-reducing impact of stock-flow adjustments.
According to the Commission 2020 spring forecast, general government debt is expected to rise from 176.6% of GDP in 2019 to 196.4% in 2020. The increase in the debt ratio is mostly due to the large drop in nominal GDP and the deterioration of the primary balance due to the cyclical developments and the fiscal measures addressing the COVID-19 crisis. The impact of those measures on debt is mitigated by the expected use of cash financing.
The debt sustainability analysis has been updated with the Commission 2020 spring forecast. This analysis confirms that notwithstanding risks, the debt position remains sustainable over the medium-term in Greece, which takes account of important mitigating factors (including the debt profile and the large share of official loans at depressed rates). In particular, while the debt position deteriorates as a result of the COVID-19 crisis, the debt-to-GDP ratio in the baseline is expected to be on a sustainable (declining) trajectory over the medium term5
(Graph 1).
Graph 1: Government debt-to-GDP ratio, Greece, % of GDP
225 205 185 165 145 125 105
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Baseline
Adverse
scenario
Source: Commission
services.
The baseline reflects the Commission Spring 2020 forecast and the post-programme commitments for Greece beyond 2021, in line with the methodology established in the context of Enhanced Surveillance. Under the adverse scenario, higher interest rates (by 500 bps.) and lower GDP growth (by -0.5 pps.), with respect to the baseline, are assumed (throughout the projection horizon).
5
4.5 Other factors put forward by the Member State
On 11 May 2020, the Greek authorities transmitted a letter with relevant factors in accordance with Article 2(3) of Regulation (EC) No 1467/97. The analysis presented in the previous sections already broadly covers the key factors put forward by the authorities.
5. Conclusions
According to the Stability Programme, Greece’s general government deficit in 2020 is planned to reach 4.7% of GDP, above and not close to the 3% of GDP Treaty reference value. The planned excess over the reference value is considered to be exceptional and currently considered to be temporary.
The general government gross debt stood at 176.6% of GDP at the end of 2019, above the 60% of GDP Treaty reference value. Greece did not make sufficient progress towards meeting the debt reduction benchmark in 2019.
In line with the Treaty and the Stability and Growth Pact, this report also examined relevant factors.
As specified in Article 2(4) of Regulation (EC) No 1467/97, as regards compliance with the deficit criterion in 2020, since the government debt-to-GDP ratio exceeds the 60% reference value and the double condition is not met – i.e. that the deficit remains close to the reference value and that its excess over the reference value is temporary – those relevant factors cannot be taken into account in the steps leading to the decision on the existence of an excessive deficit on the basis of the deficit criterion for Greece. Overall, the analysis suggests that the deficit criterion as defined in the Treaty and in Regulation (EC) No 1467/1997 is not fulfilled.
As regards compliance with the debt criterion in 2019, the relevant factors, in particular (i) the observed macroeconomic conditions; (ii) some progress with the implementation of growth enhancing structural reforms in past years, and (iii) the compliance with Greece’s fiscal targets in the context of the enhanced surveillance, lead to the conclusion that the debt criterion as defined in the Treaty and in Regulation (EC) No 1467/1997 is complied with.