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European CommissionThe Second Economic Adjustment Programme for Greece. Fourth Reviewrecapitalizations last year brought them under very large HFSF ownership. These banks have nowbroadened their capital bases considerably and are also expected to proceed to the repayment of theGreek state’s preferred shares. The bank controlled by the HFSF has initiated the capital increaseexercise, following the adoption by Parliament of the amended recapitalisation framework. The fourthcore bank announced the intention of covering the full amount of capital needs completely via internalactions like divestments, pending the approval of the BoG.81. The recapitalisation framework for Greek banks has been amended. With the amendments to Law3864/2010, the Hellenic Financial Stability Fund (HFSF) would be able to provide support if needed incase banks do not find in the market all the required capital following the announcement of the BoGstress test results. The recapitalisation framework has been redesigned in light of the improved bankingsector capitalisation and market circumstances. As such, incentives provided by the HFSF to the privatesector in the first recapitalisation exercise concluded in June 2013, such as the issuance of warrants, areno longer foreseen under the revised framework and any injection of capital by the HFSF into viablebanks shall be effected through subscription of ordinary equity carrying full voting rights, regardless ofthe private sector participation. The injection of public resources by the HFSF, which can be up to theamount of the capital shortfall determined by the BoG, is subject to the prior implementation ofmeasures in line with the new State Aid rules stipulated in the Communication of the EuropeanCommission (2013/C 216/01). Banks have been given sufficient time to raise the required amount ofcapital via private sources or via internal capital generating means, such as divestments.82. The governance of the HFSF has been further strengthened. In addition to modifying therecapitalisation framework for State capital support of Greek banks, the law on the HFSF has beenamended and adopted by Parliament on 31 March 2014 in order to further improve and strengthenthe governance and internal procedures of the Fund. The amended law provides for an increase of themembers of the General Council to nine and of the members with international experience to seven anddefines more clearly the competencies of the Executive Board and the General Council. Based on theexperience gained, the HFSF has started to review the Relationship Framework Agreements (RFAs)that regulate the rights and obligations of the Fund and the banks.83. The cooperative banking sector has been strengthened. Key steps include the successful resolutionof three non-viable institutions, with the transfer of their deposits to one of the core banks and thecorresponding funding gap (of around EUR 430 million) covered by the HFSF, and the introduction oflegislative amendments improving corporate governance and the ability of raising capital for theremaining cooperative banks. Going forward, the BoG will develop a comprehensive strategy for thecooperative sector, with a view to ensure the sector as a whole has achieved stability and standards thatare considered best practices internationally.84. Management of non-performing loans remains a major focus. Consultant (BlackRock) hasdelivered the final report on the management of troubled assets (TAR) at the end of September 2013.By end-November 2013, banks submitted to the BoG operational plans that will address the bottlenecksidentified in the TAR. As a next step, KPIs to monitor banks’ progress in reducing their large NPLportfolios will be introduced, and banks will report their progress under these KPIs. Furthermore, theauthorities will improve the regulatory, legal and judicial environment to support banks' NPLmanagement. The BoG will issue a time-bound framework for banks to facilitate the settlement ofborrower arrears using international best practices. Regulations have also been amended to improve theliquidation process of resolved banks. As a result, liquidators can now restructure loans that remained inthe bad banks with the aim of improving recovery rates. In addition, legal persons as well as privatepersons can now be appointed as liquidators to one or more liquidations. This can achieve synergiesfrom multiple liquidation procedures.85. Further amendments to the household insolvency framework were adopted in the second half of2013 and the moratoria on auctions expired in December 2013. The necessary regulations for thenew ''Facilitation Program” to be operational were adopted by the Parliament in July 2013. With theLaw 4224/2013 adopted on 31 December 2013, a temporary scheme regarding auctions of debtors'primary residence was introduced in order to protect the low income households. The temporaryscheme, that is in operation until end-December 2014, is targeted at the debtors who fulfil certainspecific criteria related to the income and the property value and obliges debtors falling within thistemporary scheme to pay 10-20% of their net monthly income to service their debt. The new temporaryarrangement was introduced following the expiration of the moratorium on the auction of the debtors'46
3. Programme implementationprimary residence on December 2013. This was one of major impediments for improving the paymentculture among Greek citizens. The effectiveness of the new temporary arrangement and its impact onstrategic default behaviour will be assessed by end-June 2014, and additional measures will be proposedin case of shortcomings in order to ensure effective implementation.86. A road map to be implemented in 2014 was set to deal with the outstanding private debt andensure a smooth transition to a permanent debt resolution mechanism. To this end, a GovernmentCouncil for the Management of Private Debt ("Council") was established by an Act of the Council ofMinisters to oversee and foster the process for the establishment of the debt resolution mechanism. Themain task of the Council (involving the Ministry of Finance, the Ministry of Development andCompetitiveness, the Ministry of Labour, Social Security and Welfare and the Ministry of Justice,Transparency and Human Rights) is to introduce and monitor the necessary actions in order to promotethe creation of permanent mechanisms for the resolution of non-performing debt of individuals, legalentities and businesses. The first meeting of the Council took place on 14 February 2014. The workingplan for the Council is ambitious, but it is starting to deliver. Definitions on 'Acceptable LivingExpenses' and 'Cooperative Borrower' have been developed in order to guide the judiciary authoritiesand the banks when dealing with the management of non-performing loans and improve the paymentculture, thereby reducing moral hazard. The definition of 'Cooperative Borrower' was published inFebruary 2014, while the finalisation of the definition of 'Acceptable Living Expenses' is still pending.The Code of Conduct, which the BoG will issue in order to provide guidance to banks on themanagement of non-performing private debt and to be fully implemented by end 2014, shall utilize theabove mentioned definitions. To have a unified approach to debt resolution, the Code of Conduct willinclude, inter alia, provisions for the assessment of risk, procedures for the assessment of repaymentcapabilities of the debtors and binding rules of conduct for the banks with clear time schedules for theassessment of the borrowers' capacity to repay the loan and the restructuring of the non-performingprivate debt.3.4. STRENGTHENING LABOUR MARKET INSTITUTIONS, PROMOTING EMPLOYMENT ANDDEVELOPPING SOCIAL SAFETY NETS3.4.1. Labour market reforms87. The comprehensive range of labour market reforms adopted over recent years (see Box 11) isdelivering clear results. Labour costs have been falling steeply on the back of augmented wageflexibility, leading to a significant recovery of the cost competitiveness lost in the earlier decade. At thesame time, the diversity of work arrangements now available creates more room for adjustment to thechanges in activity and has likely avoided even higher job destruction. In the course of 2013, hiringbecame more dynamic, despite shrinking economic activity. Further support will come from theongoing reduction in administrative burdens through streamlining labour reporting requirements and bya reduction in social security contribution rates entering in force in mid-2014.88. New job creation depends upon reforms and adjustment in other areas of the economy and oncontinued improvement in labour market institutions. Labour market reforms have fostered aswifter adjustment of labour conditions and this should allow fast job creation once the economyrecovers. Sustained higher employment depends on labour demand by actual and potential employers,which calls for determined reform and adjustment efforts in other policy areas to favour businesscreation and investment. Improvements in the business environment, opening product (goods andservice) markets to new players and investors, removing undue restrictions for certain professions andfixing the financial sector are all key to delivering labour market improvements, reaping in full thebenefits of labour market reforms. The latter now focus on increasing the employability of the longtermunemployed, eliminating disincentives to investment given rigidities in corporate restructuring andcollective dismissals rules, and on facilitating temporary work. The framework for industrial relations,industrial action and trade union operations will also be reviewed against best practices.89. The employability of the long-term unemployed will be helped by changes in the minimum wagestructure. Minimum wages in Greece evolve according to the work experience of each worker, withadditional so-called maturity allowances adding up to a maximum of 30% over the minimum wage.These allowances have already been reduced in early 2012 and have been frozen for the medium term.However, the allowances are maintained through unemployment and can create difficulties for long-47
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