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Box 2. Success stories of the Economic Adjustment ProgrammeRestoring fiscal and financial stabilityThe Economic Adjustment Programme for Greece was designed (first in 2010, and then updated in 2012), in a context ofextreme macro-economic imbalances, very large fiscal deficits and debt, a serious gap in competitiveness and productivity,rigid markets, and a contracting economy. The immediate objectives of the programme have been restoring fiscal andfinancial stability, and important progress has been made on these two fronts. After a marginally better-than expected resultin 2012, Greece exceeded the primary balance target for 2013 by a significant margin, and the authorities remain committedto achieve the fiscal targets for 2014 and beyond. Abstracting from bank resolution costs and other programme adjustments,the general government deficit as a percentage of GDP has been reduced from 15.6 in 2009 to 3.2 in 2013. The overallimprovement in this period in the underlying fiscal position when taking account of the severe recession is much larger incyclically-adjusted terms. Reforms of the pension and health systems have been adopted, putting the system on a moresustainable path. The projected increase in pension expenditure over the next 50 years is limited now to 1.1% of GDP by2060. In healthcare, pharmaceutical reforms reduced public spending on pharmaceuticals from EUR 3.9 billion in 2010 toabout EUR 2.5 billion in 2013. Public employment has been reduced by over 20% since 2010 and, along with the adjustmentin wages, a major reduction in the wage bill has been achieved.Greece has also restructured, consolidated and stabilised its financial system, which is undergoing a further recapitalisationexercise involving private investors to ensure it is well prepared to face the impact of expected losses from the high-level ofnon-performing loans. The recapitalisation framework has been redesigned in light of the improved banking sectorcapitalisation and market circumstances. The authorities are also committed to significantly strengthening the private sectordebt resolution framework and facilitating the orderly and swift workout of impaired bank assets. The buffers in the HellenicFinancial Stability Fund will be retained to meet potential future adverse contingencies.Growth-enhancing structural reforms at the core of the programmeThe reform plan under the Economic Adjustment Programme for Greece constitutes a comprehensive short- to long-termagenda for growth and employment. While strong attention to the stabilisation of public finances and of the financial systemis still necessary, the programme puts great emphasis on the implementation of a wide range of structural reforms to createnew opportunities for investment, innovation and employment. Some of these reforms are already starting to bear fruit,although many challenges remain to be addressed and vigorous action to fully implement the policy conditionality of theEconomic Adjustment Programme will still be needed.The ambitious labour market reforms already implemented, such as wider use of decentralised wage bargaining, a lowerminimum wage, and reductions in other non-wage labour costs, have allowed Greece to realign wages and to recover almostall of the competitiveness it lost over the last decade, in terms of unit labour costs: by 2014, Greece is projected to havebroadly regained its 1995 labour cost competitiveness position relative to the Euro area. Compensation per employee fell by4.2% in 2012 and is forecast to decline by 7.0% in 2013 and by a further 1.5% in 2014. Overall, the ULC-based real effectiveexchange rate of Greece is forecast to fall by 21.6% between 2009 and 2014. Looking forward, reforms in the labour marketwill have to focus not so much on wage adjustment but on increasing contractual flexibility and abolishing employmentobstacles, where there is still significant scope for improvements.Efforts to modernise product markets and improve the business environment are starting to bear fruit. The 2013 update of theOECD indicators of Product Market Regulation show that Greece made the largest improvement over the last five years,although it continues to be among the OECD countries with relatively strict product market regulations. Greece has alsoimproved substantially its overall rank in the World Bank's 2014 Doing Business Report jumping 111 ranks from 147th to36th in the starting a business field, which has made Greece the world's fastest reformer in this area. However, Greece'sranking remains low compared to other EU Member States, highlighting the need for the country to remain stronglycommitted to the agreed structural reform agenda.The adjustment programme is also a major driving force behind the crucial reform of the Greek public administration. TheGovernment is on track to deliver the decrease in general government employment by 150,000, likely ahead of the deadlineof 2015. The transfer of 25,000 employees to the mobility ("availability") scheme has been completed, although with delay,and staffing plans have been almost completed across the administration, which will imply a reduction in organisationalstructures and management posts by about a third. It is however extremely important that reform effort in the field of publicadministration for example to introduce performance evaluation, stronger appointment and recruitment standards, and morestrategic organisation, continues unabated to reach the goal of a flexible and modern service targeted at the needs of thegeneral population.10
2. MACROECONOMIC AND FINANCIAL DEVELOPMENTS2. MACROECONOMIC AND FINANCIAL DEVELOPMENTS2.1 MACROECONOMIC DEVELOPMENTS4. Both soft indicators and hard data point to a bottoming out of the protracted economic recessionin Greece. The pace of the recession weakened markedly in 2013 with negative GDP growthdecelerating from 6.0% year-on-year in the first quarter to 2.3% in the last quarter. The GDPcontraction of 3.9% 1 for 2013 as a whole was slightly less pronounced than expected during the lastreview in July 2013 (4.2%). The impetus towards recovery was reinforced by tourism as the engine ofgrowth last summer, supported by increased competitiveness and simplified visa procedures. In broaderterms, the deceleration in the pace of the recession has been driven by developments in both private andpublic consumption, as well as net exports. As regards private consumption, developments weresupported by prices falling somewhat faster than expected as the strong decline in unit labour costsincreasingly fed through to consumer prices, offering some buffer for household purchasing power aswell as important momentum for the economy. These effects helped offsetting the temporary impact ofthe hike in property taxes and the reductions in Christmas bonuses on disposable income in the secondhalf of the year. On the exports side, the strong tourism season boosted services exports while therecovery in other type of exports has been very modest. Net exports were driven also by a continuedcontraction of imports, and Greece registered a current account surplus last year for the first time sincethe 1940s. While the pace of contraction slowed down also for investment, it still remained very weakthroughout 2013. However, a combination of large planned infrastructure projects coupled withcontinued structural improvements in business environment and rising confidence should support agradual revival ahead.5. The first signs of prospective economic recovery heralded in spring 2014. Economic confidenceindicators such as the Economic Sentiment Indicator (ESI) and the Purchasing Managers Index (PMI)continue to improve and the latest industrial production releases strongly point to first signs of recovery.The strong recovery in the ESI has been broadly based on improvements in manufacturing, services andretail sectors. Some improvement is also visible in consumer confidence indicators, although to a muchlesser extent, retaining it at rather low levels compared to its pre-crisis average. The PMI crossed the 50mark in January 2014 and remained above thereafter, indicating an expansion in output and new ordersfor the first time since August 2009. Greek government bonds spreads narrowed significantly inFebruary and March 2014 and corporate interest rates also went down. Net exports of goods andservices, beyond tourism, are showing some improvement and the external adjustment is proceeding.Employment started to increase as of March, reflecting seasonal gains from tourism although thesegains were largely lost as of September. Whilst unemployment still remains at very high levels (at27.3% in 2013), prospects are improving for a fall in the rate starting already in the course of this year.February 2014 data on private-sector dependent employment flows (net hirings amounted to 19,900)have been positive for the first time since 2008, also supported by the implementation of the publicworks schemes.1 Based on revised data for the period 2012-2013 released by ELSTAT in March 2014.11
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4. DEBT SUSTAINABILITY ANALYSIS AND
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4. Debt sustainability analysis and
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4. Debt sustainability analysis and
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Table 12. List of Milestones to be
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ANNEX 2: MACROECONOMIC FORECASTANNE
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ANNEXTable B1: USE AND SUPPLY OF GO
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ANNEXTable C1: FISCAL ACCOUNTS AND
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ANNEX 3: UPDATED PROGRAMME DOCUMENT
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OCCASIONAL PAPERSOccasional Papers
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No. 46No. 47No. 48No. 49The Western
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No. 80 2011 Pre-accession Economic
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No. 119No. 120No. 121No. 122Possibl
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No. 1582013 Economic and Fiscal Pro
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