ocp192_en

Memorandum of Understanding on Specific Economic Policy Conditionality1. Achieving sound public financesAccording to preliminary estimates Greece is expected to over-perform its primary-balancetarget for 2013 in programme terms by a significant margin and well-ahead of schedule. The keydriver behind the surplus is under execution of expenditures, and over-performance of state revenues.The statistical validation of all 2013 data is currently being undertaken by Elstat and Eurostat. Thedegree of the over-performance will be determined with the publication of the official accrual deficitby Eurostat on 23 April 2014. In accordance with the Eurogroup statement of November 2012, whenthe figures are validated the authorities intend to transfer at least 30 percent of the over-performance tothe segregated account earmarked for debt reduction by April 2014. In addition, another part of theover-performance is expected to be used for clearing unpaid government obligations linked to the past,thereby not affecting the 2014 headline deficit.The adjustment path towards the correction of the excessive deficit shall aim to achieve generalGovernment primary surpluses in programme terms of at least EUR 2,750 million (1.5% ofGDP) in 2014, EUR 5,650 million (3.0% of GDP) in 2015 and EUR 8,900 million (4.5% of GDP)in 2016. These targets for the primary surpluses imply an overall Government deficit of 2.9% of GDPin 2014, 2.1% of GDP in 2015 and 0.7% of GDP in 2016.For the purpose of the program, the primary balance is defined as general government EDP balance(EDP B.9) minus ESA 95 general government consolidated interest payable (EDP D.41), adjusted forthe following factors (i) the accrual revenue from the real estate levy collected through the PPC of agiven year will include cash receipts within the year plus amounts pertaining to the given yearreceived through March of the following year; The deficit will exclude the following (ii) the sale ofnon-financial assets such as land, buildings, and other concessions or licenses, unless these have beenagreed in the context of the program; (iii) costs related to bank recapitalisation and other bank supportmeasures; (iv) any payments from banks that would undermine their solvency or liquidity, unless theBank of Greece confirms that such a payment would be compatible with the preservation of adequatecapital buffers and liquidity going forward, including by verifying consistency with banks’ businessplans as included in the stress test (the two exceptions to this are the capital concentration tax and theguarantee fee structures currently in place); (v) all transfers related to the Eurogroup decisions ofFebruary 21, 2012 and November 26, 2012 in regard to income of euro zone national central banks,including the BoG, stemming from their investment portfolio holdings of Greek government bonds;(vi) any other transactions related to debt-reducing measures agreed in the context of the program,such as the reduction of Greek Loan Facility (GLF) interest margin which are counted below the linein the debt sustainability analysis; and (vii) any called guarantees to entities outside the generalgovernment related to liquidated public enterprises above what is already expected in the fiscalprogram for the current fiscal year.The Authorities have agreed to implement in full the measures to ensure the 2014 programmetarget of a primary surplus of 1.5% of GDP will be met. Furthermore, the Authorities havecommitted to implementing a range of structural fiscal policies to finance growth-enhancing reforms(e.g. an ambitious cut in Social Security Contributions by 3.9% and the abolition of a range ofnuisance charges). These fiscal structural policies include the reduction of binding expenditure ceilingsin the MTFS 2015-18 to lock in 2013 expenditure under-execution, as well as the commitment to takeoffsetting actions should any additional adverse court rulings materialize regarding special wageregimes or levies on properties.149