July 7, 2022

The Importance of the Greek Referendum

of 5th July, 2015!

With Greece having made its final plea and proposal to the European Commission it now awaits a decision whilst teetering on the brink of a Greek Exit and Dr Christian Heinze brings us an evaluation of what the Greek citizens voted for in the Referendum of 5th July 2015.

Heads you win, tails you lose, so which is it to be for Greece?


Importance of the Greek Referendum of 5 July, 2015

By Dr. Christian Heinze, München
(pro-re-publica.de – 2015 07 08)

The referendum.

The Greek people were asked by their government to vote, on 5th July, 2015, by referendum, on the following question:

„Πρέπει να γίνει αποδεκτό το σχέδιο συμφωνίας, το οποίο κατέθεσαν η Ευρωπαϊκή Επιτροπή, η Ευρωπαϊκή Κεντρική Τράπεζα και το Διεθνές Νομισyes or no to the European Unionματικό Ταμείο στο Eurogroup της 25.06.2015 και αποτελείται από δύο μέρη, τα οποία συγκροτούν την ενιαία πρότασή τους; Το πρώτο έγγραφο τιτλοφορείται «Reforms for the completion of the Current Program and Beyond» («Μεταρρυθμίσεις για την ολοκλήρωση του τρέχοντος προγράμματος και πέραν αυτού») και το δεύτερο «Preliminary Debt sustainability analysis» («Προκαταρκτική ανάλυση βιωσιμότητας χρέους»).“

Which is in English:

“Should the plan of agreement be accepted, which was submitted by the European Commission, the European Central Bank, and the International Monetary Fund in the Eurogroup meeting of 25 June 2015 and comprises two parts, which constitute their unified proposal? The first document is entitled  ‘Reforms For The Completion of the Current Program and Beyond’ and the secondPreliminary Debt Sustainability Analysis.

Source: Wikipedia click here

The referendum does not refer to any official publications, either by Greek or by European instances, of the two documents quoted in it. Unofficial versions were not easily available to the Greek people. They could be found, however, by searching the internet, as a publication by Fortune magazine, by clicking here and clicking here These publications are reproduced as Annexes A and B below.

A meeting of ministers of 2nd June, 2015, is referred to in an internet-blog at the address http://blogs.ft.com/brusselsblog/2015/06/25/leaked-greece-bailout-plan-sent-to-eurogroup/


“The ministers have been sent what one official termed a “feasibility blueprint” – but the Financial Times has obtained a copy and it looks very much like the version creditors annotated and sent back to Athens on Tuesday. We’ve posted a copy of the document below.”

The author was unable to find a link actually leading to a copy of the Document mentioned. Concerning the plan of the referendum, however, the European Commission has given the following information, published in the internet click here


“Brussels, 28 June 2015

In the interest of transparency and for the information of the Greek people, the European Commission is publishing the latest proposals agreed among the three institutions (European Commission, European Central Bank and International Monetary Fund), which take into account the proposals of the Greek authorities of 8, 14, 22 and 25 June 2015 as well as the talks at political and technical level throughout the week.

Discussions on this text were ongoing with the Greek authorities on Friday night in view of the Eurogroup of 27 June 2015. The understandingEuropean Commission of all parties involved was that this Eurogroup meeting should achieve a comprehensive deal for Greece, one that would have included not just the measures to be jointly agreed, but would also have addressed future financing needs and the sustainability of the Greek debt. It also included support for a Commission-led package for a new start for jobs and growth in Greece, boosting recovery of and investment in the real economy, which was discussed and endorsed by the College of Commissioners on Wednesday 24 June 2015.

However, neither this latest version of the document, nor an outline of a comprehensive deal could be formally finalised and presented to the Eurogroup due to the unilateral decision of the Greek authorities to abandon the process on the evening of 26 June 2015.


The media have interpreted this state of affairs as a withdrawal of the suggestion of the plan in question by the Euro-Group.

Of the 61,5 % of the Greek people eligible for voting and taking part in the referendum,  more than 60 % answered the question asked with “no”, almost 40% with “yes” (37% and 24% respectively of the population eligible for voting).

Meaning of the “plan” referred to in the referendum.

The two papers purported to have been submitted to the Euro Group on the 25th June, 2015, can be interpreted as containing a plan for reforms including legislation and executive action to be undertaken by the Greek government under the terms of an extension of 20th February, 2015, of a certain “MFAFA” as part of an integrated three pillar project comprising financial arrangements and support from European partners including financing of the Greek government meeting immediate obligations and of Greece regaining market access. Financing is referred to as a “lending arrangement”.

The plan provides for the Greek government “to implement the list of reforms through a vote in parliament in a matter of days” designed “to deliver the agreed fiscal targets”. It is planned to “get people back to work”. The list of reforms contains a comprehensive description of legislation to be passed and executive action to be taken by the Greek government. In some instances, a concrete framework is defined for the substance of laws to be passed and action to be taken, leaving limited room for Greek organs to exercise decisive discretion. However, with reference to the bulk of the action provided for, the plan allows for interpretation and implementation within a more or less wide qualitative and quantitative regulatory scope. ThGreek Parliamente paper does not seem to allow a complete waiver of any one of the specific parts of the plan; they are required to be implemented as a whole.

The Debt Analysis, exceeding its headline, contains “an extension of the current EFSF financial assistance programme”. It then refers to a 2012 EG framework for debt and could be understood as promising help for a reduction of the Greek national debt. It mentions reasons for the recent deterioration of the Greek economic and budgetary situation and remedies to be planned and described by very broad criteria such as “growth effects” or “privatization”.

To sum up: As far as can be gathered from the papers mentioned in the referendum, the Greek people was called upon to vote on whether Greece should accept a comprehensive plan implying financial lending by and financial benefits for Greece, both at inestimable amounts, on condition of a number of measures to be taken as a whole by Greece and supervised by European instances which would shape its economy in a basic way, or whether Greece should renounce the opportunity of receiving financial aid for the solution of its fiscal problems.

The outcome of the referendum has, however, been widely interpreted as a pronouncement of the will of the Greek people, more or less binding on the Greek government, that the measures described in it, which would certainly cause a considerable reduction of Greek living standards, should not be taken.


The following chapter undertakes to describe the meaning of the referendum exclusively from point of view of its importance for the discussion, whether or not and under which conditions and in which form and amount, financial aid should be extended to Greece or to Greeks by European and particular Euro-Countries in the future. This importance is constituted by interests and considerations or obligations entertained by the European Countries and their people.

International economic partnership and statehood.

In such an evaluation, prominent rank belongs to the interest in the capability of Greece of participating in international economic exchange and particularly in the common market of the European Union, because the question of extending financial aid to Greece arises from the insufficient economic and financial state of Greece endangering this capability and participation. The capability is crucially reduced through the inability of Greece to offer goods or services at a quality, quantity and price meeting existing demands within or without Greece, as would cover the cost of the living standard required by the Greek people (lack of competitiveness). As a consequence, Greece Euros loanand some Greek parties are unable to repay national and private debts that have accrued to the amount of more than twice the annual Greek national product. This capability cannot be restored by the extent to which financial aid would be used for a reduction of the national debt, and it cannot be restored either with the help of additional financial aid used for filling the gap between current national income and spending, because both would not restore Greek competitiveness. Only insofar as aid would surpass the amounts needed for these two purposes could it help to recover the capacity in question mainly by subsidizing costs of living during a stage of economic recovery and by helping productive efforts including investments.

In this respect, the “no”-answer to the referendum does not necessarily indicate a refusal of measures needed for such recovery altogether and not even of specific measures as mentioned in the plan referred to in the referendum, but only the refusal of incurring additional debts and the refusal of an infringement on the power of Greece to define the individual measures or their composition. The refusal of increasing debts, be it for the repayment of existing debts, be it for equalizing the state’s budget on the future, be it for helping economic recovery or transitional alimentation favours the true interest of the Euro-Countries because, given the inability of Greece to repay her debts for decades to come, aid would amount to transfer and loss. Describing aid as credit would, regardless of questions of legality or legitimacy of incurring “debts” that cannot be repaid, amount to an act of deception and self deception which would damage further the true interest not only of the Euro-Countries but of Greece as well. Filling the gap in the budget of the Greek government does not promote an advantage for the Euro-Countries. The desire of Greeks to determine themselves the necessary economic measures, is not as such inconsistent with the interest of the Euro-Countries, because it may promise even better results than the plan developed by them.

It follows that the outcome of the referendum, be it yes or no, does not prejudice in any way the economic and financial behavior or legislative power of the Greek people or the powers of any Greek government organs necessary to restore the equilibrium of expenditures and income of the Greek people and of Greece and to restore, thereby, a status of Greece as a viable partner for international economic and financial and even political relations in general. In particular, this government is not prevented by any outcome of the referendum from negotiating financial help under different conditions than those described in the referendum.

Partnership in the European Union.

  • or capability of international partnership in general

The referendum as such damages the capability of Greece for partnership in any international relations which is a requirement for the very existence as a State. This is because such partnership requires the sovereign power of government to cope with problems like such as derive from disequilibrium between public and private spending and public and private income endangering government itself. Given the wide scope of the measures presented for referendum as a whole and covering most central sectors of economic and financial policy, the government signals, by asking for the vote of the people, its own political disability of deciding on and/or enforcing the individual measures constituting the necessary policy bGreek EU partnershipy virtue of its sovereign power. If not just some particular individual measures but the whole entity of individual measures essential for economic and fiscal policy of a country would require the vote of the people, then these people would not possess a government, it would cease to exist as a State. Greece could avoid this consequence not by negotiating but only by actually introducing immediately, by virtue and force of its own sovereignty, such effective legislation or executive action as necessary to reestablish equilibrium between spending and income of Greece and its people.

Additional requirements apply to membership of Greece in a European Union. As far as they comprise equalization of spending and income, this requirement may be limited by allowing for certain transfers of the sort of social redistribution or compensation for unchangeable economic or natural preconditions varying in different parts of the union or for caritative aid within the limits of their own potential. (It is another question whether the Union as a whole observes those limits.) Outside and above such limits, however, homogeneity of the system of basically free production and distribution of goods and services (in Europe: market economy) is a basic requirement for membership. Should neither government nor people be willing or able to meet this requirement, membership is doomed to come to an end. The referendum does not indicate such a position. The Greek government asking for the referendum, does not prove its (impending or purported) lack of sovereignty (it has not tried to bring about enactment of any of the individual measures required to restore economic equilibrium and has therefore not proven unable to do so). The referendum can be explained as a tactical move to cause (be it erroneous) impressions in its own people or in other countries facilitating its policy. And the Greek people would not have, as outlined above, by voting yes or no in the referendum, expressed their unwillingness for an economic behavior compatible with membership in the EU. Not the referendum but the factual behavior of the people or their government promotes the already existing situation of disequilibrium of the economy to one that would end Greek partnership in the EU.

Another requirement for membership in the EU is usually described as a constitution of democracy and of rule of law. Both principles are damaged by the referendum.

The democratic principle is distorted by an attempt at making voting results appear as an expression of the will of the people, when the question voted upon is as widely detailed and as open to interpretation and as remote from possible comprehension by the voters as derives from the outline given above in respect of the Greek referendum of 5th July, 2015: The referendum in question lacks democratic validity also because it refers to an offer or request from the Euro-Countries, the very existence of which, as derives from announcements of the Euro-Group, is at least doubtful. It further lacks democratic validity because it describes the plan on which the people are asked to vote by reference to headlines of two documents of which no official publication exists or is referred to in the referendum and an unofficial version if which cannot be traced by the public, be it in the internet or elsewhere, and particularly not in official publications, even with some effort. Even insofar as papers edited under the headlines mentioned are said to be able to be traced as quotations by Greek government instances in the internet (“Wikipedia”), the referendum lacks democratic validity because their content is largely unclear, particularly because of their use of vague notions subject to almost unlimited interpretation such as investments for “stabilization of economy”, “arrangement” for regaining market access, “increasing employment”, “social inclusion initiatives” and because they refer, for the definition of almost all details of the plan in question, to instruments like “MFAFA” or “EFSF programs” or “2012 EG framework” or “GLF” which are not sufficiently known to the voting public and which cannot, even with some effort, be traced in their wording in the internet or otherwise.

The rule of law is endangered by the assumption of an answer to the referendum possessing binding quality comparable to that of a law. This is because the answer to the referendum does not by far attain the degree of precision required by any law and because the substance which can at Justicebest be derived from it by interpretation is not covered by the will of the people unable to sufficiently understand the question put to them but expressed by direct voting as distinguished from parliamentary legislature through indirect democracy. Another defect from the principle of the rule of law is contained in the lack of publication of the full substance and meaning of the answer to the referendum amounting to a binding act. An official publication in a manner and reliable form securing the possibility for everyone subject to its binding effect to take notice of its full and exact contents and meaning is another requirement of the principle of the rule of law, lacking in the case of the referendum in question. This attempt at creating law is also inconsistent with the principle of division of legislative, executive and judicial powers which can be understood as forming part of the principle of the rule of law.  This is because a binding plan as referred to in the referendum would curtail the essential power of government to initiate legislation. In addition, given the inability of Greece to repay even debts already incurred for many decades to come, the yes-vote on additional debts, even if it were democratically valid, would be incompatible, if not with international law because of its obviously intended damaging effect on the economy of the lending States and their peoples or its intended creation of error in the true nature of so-called “lending” as financial transfer, then it would be incompatible in any case with basic public interests of constitutional importance for Greece in its capacity as an international partner.

The adherence of  Greece to the principles of democracy and the rule of law would come under additional doubt through a judgment of its Supreme Administrative Court allowing the referendum as an act of direct democracy contravening a constitution of representative democracy or even allowing its disobedience to fundamental democratic principles (the position of the Greek judgment reported to have actually been given remains to be examined in detail).

An individual violation of the principles of rule of law and of democracy embodied in the referendum would not destroy but may put in question the fulfillment by Greece of the respective requirements for membership in the EU.

Partnership in the community of the Euro-Countries.

Contemporary political debate appears to be widely based on the assumption that Greece cannot remain a member of the Community of Euro-Countries without receiving additional financial aid. It would follow that a vote on refusing such aid entails thGreece what nexte necessity for Greece to leave that community and introduce a national currency of its own. Such a conclusion would not be valid because, in the first place, the no-vote does not reject financial aid but the conditions to be attached to it. And secondly, no serious attempts seem to have been made to consider whether the Euro-System is linked or must necessarily be linked with a right of member States to borrow Euro at their discretion. At first sight, such a rule would not appear compatible with a currency system designed to provide monetary stability. It is normal for a currency system to function for a society of rich and poor, honest and dishonest market participants. Even if a link of the sort indicated would exist, the Euro system would be open to and would require an adaptation of its rules and practices to cope with a situation and behavior of a market partner like that adopted by Greece. Such adaptation would, beyond helping Greece, actually serve the interest of all Euro-Countries and might even prove essential for a survival of the Euro-system.

Summary result.

As a result, the outcome of the referendum, be it yes or no, does not prejudice in any way the economic and financial behavior or legislative power of the Greek people or the powers of any Greek government organs necessary to restore the equilibrium of expenditures and income of the Greek people and of Greece and to restore, thereby, a status of Greece as a viable partner for international economic and financial and even political relations in general. It does not rule out continued membership of Greece in the Euro-Zone.

However, the unhelpful adventure of the referendum of 5th July, 2015, retains some value by giving a hint as to what the Greek government should probably ask its people, namely: is it prepared to suffer the consequences of certain precise actions to be planned by the government in order to reduce government and/or private spending and/or increase the financial means at the disposition of the Greek government, as there are, for example, collecting all due taxes, regulating taxes equally, increasing them and particularly VAT as necessary, reducing  social transfers including pensions, reducing the number of public servants or even following the example of the government of the Greek Republic of South Cyprus by devaluating internal private claims (to avoid leaving the EURO-Zone and relying on a new national currency). However, it does not even take a referendum to ask such questions. It suffices for the Greek government to introduce the necessary bills to parliament for enactment and to take the necessary executive action within its competence.

Editors Notes.

Dr Christian Heinze was tDr Christian Heinze 3he Assistant to the late President of the Constitutional Court of the “Republic of Cyprus” in Nicosia in 1962/63.

To read more of Christian Heinze’s articles please visit his website click here 



Annex A

Source : Fortune Magazine to view click here 

“Reforms for the completion of the current programme and beyond”


The document presents a full summary if the reforms and legislative projects that the Government if Greece will undertake and implement under the terms of the February 20, 2015 extension of the MFAFA. It is presented to Greece’s partners in order to complete the review of the current arrangement, so that Greece and its partners can proceed to launch a new partnership and new chapter for Greece that gives clarity to the people, in particular the young and unemployed.

These reform proposals are part of an integrated three pillar approach that includes a new financing arrangement and support from European partners for growth and investment. On financing, completion of the review will unlock short-term financing that will permit the Greek government to meet its immediate obligations and thus allow for the stabilisation of economy. It should also lead to a medium-term financing arrangement that will enable Greece to sustainably regain market access.

These reforms will take time to bear fruit, and whilst long-term recovery will need to be financed privately, kick-starting the flow of investment funding will require an initial boost. Greece must be allowed to benefit from the substantial means available from the EU budget and the EIB to support investment and reform efforts. For the period 2007-2013, Greece was eligible for EUR 38 billion in grants from EU policies, and should be allowed to benefit from the currently remaining amounts under this envelope. For the 2014-2020 period, more than EUR 35 billion is available to Greece through EU funds, and to help their absorption, the European Commission’s Investment Plan for Europe should provide an additional source of investment as well as technical help for public and private investors to identify, promote and develop high-quality and feasible projects to fund. This investment will also help the Greek state in its fight against poverty by increasing employment and helping with social inclusion initiatives. We understand the Commission is ready to adopt such a plan immediately and count on the other EU institutions for their joint support.

The Greek government remains fully committed to the program supported by the lending arrangement. It believes that its policies are adequate to achieve the objectives under the program and stand ready to take any measures that may become appropriate for this purpose as circumstances change. The Greek authorities commit to refrain from any rollback of measures and unilateral changes to the policies and structural reforms that would negatively impact fiscal targets, economic recovery or financial stability, as assessed by the institutions, in line with the 20 February 2015 Eurogroup statement. The Greek government will consult with the institutions on the adoption of any such actions and in advance of any revisions.

The Greek government will confirm its full support to implement the list of reforms through a vote in Parliament in a matter of days on a resolution on the list of reform in this letter and on a set of prior  actions that will include the necessary legislation on VAT  and other measures necessary to deliver the agreed fiscal targets.

Tackling the social crisis and strengthening fairness across society.

The economic crisis has had an unprecedented impact on the welfare of Greek citizens. The most pressing priority for the government is to provide immediate support to the most vulnerable to help alleviate the impact of the economic crisis. Already, a package of humanitarian measures on food, housing and access to health care has been adopted and is being implemented. It is the collective mission to get people back to work and  prevent the  entrenching o f  long-term  unemployment. The authorities, working closely with European partners, will initiate measures  to  boost employment by 50.000 people targeting youths, women, the elderly and the long-term unemployed.

A fairer society will require that Greece improves the design of its welfare system, so that there is a genuine social safety net which targets scarce resources at those who need it most.. The Greek government will take measures to alleviate the impact of the economic crisis on the most vulnerable and will improve the social safety net. It commits to launch a comprehensive Social Welfare Review, including family and disability benefits, with the assistance of the World Bank, to be completed by October 2015, targeted to generate savings of ½ percent of GDP annually which will serve as the basis for the redesign of a targeted welfare system including the gradual roll-out of a Guaranteed Minimum Income (GMI) scheme in January 2016. The authorities plan to benefit from available technical assistance from international organisations.

Delivering sustainable public finances that support growth and jobs.

The unprecedented adjustment in recent years has required tremendous sacrifices from Greece and its citizens. Public finances are now on a more sustainable footing compared to the pre-crisis period, although Greece is facing a primary deficit of about –2/3 percent of GDP in 2015, absent additional measures. The consolidation, has also relied on a dramatic scaling back of public investment and services, which will need to progressively normalize in order to sustain growth potential. Furthermore, the burden of the fiscal adjustment has fallen more heavily on certain groups, especially workers. This will be corrected by widening the tax base and by eliminating loopholes and exemptions and special benefit privileges that have protected certain groups from bearing a fair share of the adjustment burden.

The Greek authorities commit to ensuring sustainable public finances and achieve sizeable and sustainable primary surpluses over the medium-term that will reduce the debt to output ratio steadily and which are in line with the primary surpluses of other Eurozone economies with high levels of public debt. The trajectory of the fiscal targets is consistent with expected growth rates of the Greek economy as it recovers from its deepest recorded recession. To demonstrate its commitment to credible fiscal policies, the Greek authorities will undertake structural fiscal reforms:

  • effective as of July 1, adopt a supplementary for 2015 budget and a 2016-19 medium-term fiscal strategy, supported by a sizable and credible package of measures,
  • pursue a new fiscal path premised on a primary surplus target of 1, 2, 3, and 3.5 percent of GDP in 2015, 2016, 2017 and 2018 and beyond, respectively
  • base their fiscal strategy on parametric measures, including a major simplification of the VAT system producing additional revenue of 1% of GDP and a structural reform of the pension system with savings of 1% of GDP in 2016. There will be an additional supplementary package of parametric measures, including long overdue reforms to close loopholes in the tax system and curtail spending on expenditure items, such as defence and subsidies, where further savings are still feasible.

Parametric fiscal measures will be bolstered by a wide range of administrative actions to address shortfalls in tax collection and enforcement: these measures will take some time to bear fruit but offer significant upside fiscal yield going forward.

The Greek government will monitor fiscal risks including possible court decisions, and stand ready to take offsetting measures as needed to meet the fiscal targets.

VAT reforms.

Greece has a very fragmented VAT system. As part of its commitment to improve VAT collection, the authorities will adopt legislation changing parameters to significantly broaden the tax base at a standard rate of 23 percent, which will include restaurants, hotels and catering. Reflecting the needs to protect the disposable income of low and middle income households, there will be a reduced rate of 13% to cover a limited set of goods, that includes energy, basic foods, and water (and sewage) . There will also be a super-reduced rate of 6% on pharmaceutical , books and theaters. As part of efforts to promote fairness, the reform will eliminate discounts including on islands, and streamline exemptions and raise the tax on insurance. These legislative changes of parameters, which will generate  revenue starting in July 2015 with an annual fiscal yield of 1 % of GDP, are  being  supported  with  administrative measures  to combat  fraud and increase compliance. The increase of the VAT rate described above may be reviewed at the end of 2016, provided that equivalent additional revenues are collected through measures taken against tax evasion and to improve collectability of VAT. Any decision to review shall take place in consultation with the institutions.

Pension reform.

The 2010 and 2012 pension reforms improved the sustainability of the overall pension system, which was previously fragmented and costly and placed unsustainable burdens onto future generations. But the pension system still requires significant annual transfers from the State budget. Further, much more ambitious and courageous steps are required to address the existing structural challenges and additional strains on the system caused by an economic crisis where contributions have fallen due to high levels of unemployment whilst spending pressures have mounted as many citizens opted to retire early. To address these issues, the authorities are committed to implement the 2010 and 2012 reforms fully and proceed with further reforms in two phases.

A first package of measures will be adopted immediately, targeting 1% of GDP in enhanced savings annually by 2016. The fiscal impact of these measures listed below will grow in 2017. With these aims, the Authorities will:

  • adopt legislation to create strong disincentives for early retirement by adjusting early retirement penalties and by gradually eliminating grandfathering to statutory retirement age and early retirement pathways and progressively adapting to the limit of statutory retirement age of 67 years, or 62 and 40 years of contributions by 2022, applicable for everybody retiring (except for arduous professions and mothers with children with disabilities) after June 30, 2015. . Withdrawals from the social insurance fund will incur an annual penalty, for those affected by the extension of the retirement age period, equivalent to 10 percentage points on top of the current penalty of 6%
  • integrate into ETEA all supplementary pension funds, and ensure that, starting January 1, 2015, all supplementary pension funds are only financed by own contributions
  • better target social pensions  by increasing  OGA  uninsured  pension,
  • gradually phase out the solidarity grant (EKAS) for all pensioners by end-December 2019. This shall start immediately as regards the top 20% of beneficiaries with the modalities of the phase out to be agreed with the institutions. .
  • increase health contributions paid by pensioners to 6% on average, and extend it to supplementary pensions
  • phase out all state-financed exemptions and harmonize contribution rules for all pension funds with the structure of contributions to IKA from 1 July 2015;
  • freeze monthly guaranteed contributory pension limits in nominal terms until 2021;
  • provide to people retiring after 30 June 2015 the basic, guaranteed contributory, and means tested pensions only at the attainment of the statutory normal retirement age of currently 67 years;

To complete the package, the authorities will in the second phase pass further legislative reforms in order to establish a closer link between contribution and benefits and the integration of outstanding funds. In designing these reforms, the government will ensure that the burden of adjustment is fair to ensure that the most vulnerable households are protected whilst avoiding undue burdens onto future generations and that there is a clear link between contributions and entitlements so as to incentivise declared work and longer working lives. To this end, the authorities, will legislate by October 2015 to take effect from January 1, 2016: (i) specific design and parametric improvements to establish a closer link between contributions and benefits (ii) broaden and modernize the contribution and pension base for all self-employed, including by switching from notional to actual income, subject to minimum required contribution rules (iii) revise and rationalize all different systems of basic, guaranteed contributory and means tested pension components, taking into account incentives to work and contribute (iv) the main elements of a comprehensive SSFs consolidation, including any remaining harmonization of contribution and benefit payment rules and procedures across all funds, (v) abolish all nuisance charges in the financing of pensions and offset by reducing benefits or increasing contributions in specific funds to take effect from 31 October 2015; and (vi) harmonize pension benefit rules of the agricultural fund (OGA) with the rest of the pension system in a pro rata manner, unless OGA is merged into  other funds. This shall be done in full agreement with the  institutions. The authorities will consult the social partners and collaborate with the EU’s Ageing Working Group.

The consolidation of social insurance funds will take place by end 2017. In 2015, the process will be activated through legislation to consolidate the insurance funds under a single entity by December 2015, and complete the operational consolidation by December 2016. Further reductions in the operating costs combined with a more effective management of fund resources, including improved balancing of needs between better-off and poorer-off funds, will be actively encouraged. The insurance law will be codified in 2016 to correspond to the new organisation of the new and more integrated social security system. Finally, the government will adopt the necessary legislation to fully offset the fiscal impact of the implementation of the recent Constitutional Court ruling on the 2012 pension reform.

In parallel to the reform of the pension system, a Social Welfare Review will be carried out to ensure fairness of the various reforms. The institutions are prepared to take into account other parametric measures within the pension system of equivalent effect to replace some of the measures mentioned above, taking into account their impact on growth, and provided that such measures are presented to the institutions during the design phase and are sufficiently concrete and quantifiable, and in the absence of this the default option is what is specified above.

Additional parametric budgetary measures.

The government, including as part of supplementary budget, will adopt a series of additional parametric fiscal measures that will have a sustainable impact on public finances. This will include:

  • closing possibilities for income tax avoidance (e.g., tighten the definition of farmers), taking measures to increase the corporate income tax in 2015 and requiring 100 percent advance payments for corporate income as well as individual business income tax by end-2016; eliminating the preferential tax treatment of farmers in the income tax code; raising the solidarity surcharge; and adopting outstanding reforms on the codes on income tax, and tax procedures and abolishing all Code of Book and Records fines.
  • abolishing subsidies for excise on diesel oil for farmers and better targeting eligibility to halve heating oil subsidies expenditure in the budget 2016.
  • Reducing the expenditure ceiling military spending by €400 million with a targeted set of actions, including a reduction in headcount and procurement
  • An increase in the solidarity contribution in 2015. By September 2015, the authorities will also re-design the Income Tax Code for income of 2016 to more effectively achieve progressivity in the income tax system and which simplifies the personal income tax credit schedule;
  • Introduce  a  reform  of  the  income  tax  code,  inter  alia  covering  [ capital  taxation],
  • investment vehicles, farmers and the self- employed;
  • Increase the corporate income tax in 2016 from 26% and 28%.
  • Introduce a tax on television advertisements, and an international public tender will be announced for the acquisition of television licenses in return for a fee for the acquisition and use of the relevant frequencies.
  • Extend the implementation of the luxury tax on recreational vessels in excess of 10 meters and increase the rate from 10 to 13%, coming into effect from the collection of 2014 income taxes and beyond;
  • In view of any revision of the zonal property values, adjust the property tax rates if necessary to safeguard the 2015 and 2016 property tax revenues at €2.65 billion and adjust the alternative minimum personal income taxation;
  • Eliminate the cross- border withholding tax introduced by the installments act (law XXXX/2015) and reverse the recent amendments to the ITC in the public administration act (law XXXX/2015), including the special treatment of agricultural income (law XXXX/2015); implementing taxation on Gross Gaming Revenues (GGR) of 30% on VLT games expected to be installed at second half of 2015 and 2016
  • launch the tender process for the issuing of 4G and 5G licenses.
  • increase the rate of the tonnage tax and phase out special tax treatments of the shipping industry
  • On health care, the government will re-establish full INN prescription, without exceptions; reduce the price of all off-patent drugs and all generics, by repealing the grandfathering clause; limit the prices of diagnostic tests and strengthen the pharmaceutical rebates; and implement and extend to 2016 the clawback for private clinics, diagnostics and pharmaceuticals. By end December 2015, increase the proportion of centralized procurement, of generic medicines and of procurement by hospitals of pharmaceutical products by active substance, in line with agreed targets, and take structural measures as needed to ensure that spending for 2016 is in line with the claw back ceilings.

By September 2015, the government will simplify the personal income tax credit schedule; re-design and integrate into the ITC the solidarity surcharge for income of 2016; issue a circular on fines and adopt other remaining income tax reforms. By November 2015, the authorities will issue all secondary legislation to implement the income tax and tax procedure code reforms, with effect from January 1, 2016. Also by November 2015, the authorities will codify and simplify the VAT legislation, aligning it with the tax procedure code, eliminating outstanding loopholes and shortening the VAT payment period; and simplify the income tax regime and ensure consistency of the income base for income tax and social security contributions of small businesses below the VAT registration threshold.

Tax administration reforms.

The ability to collect taxes has been hampered by a long history of complicated legislation, poor administration, political interference and generous amnesties, with chronically weak enforcement. To break from this practice and improve the tax payment culture, the government firmly commits to not introduce new installment or other amnesty or settlement schemes nor extend existing schemes. The authorities will:

  • Adopt legislation to establish an independent tax and customs agency, which will be fully functional by end-June 2016, and will integrate all tax and customs related staff and functions, including those of SDOE; by October 2015, they will appoint the Board of Governors and adopt priority secondary legislation of the law on the autonomous revenue administration agency.
  • rapidly reinforce on a permanent basis the capacity of the tax administration especially on
  • issues of liquidation and tax collection from large debtors; and by October 2015, reinforce the Large Debtors Unit with highly skilled legal advisers to improve its capacity to assess debtor viability
  • Implement measures to improve tax and SSC collection by strengthening enforcement tools such as garnishments; by October 2015, adopt a fully-fledged plan to increase tax compliance, issue legislation to quarantine uncollectable Social security contribution debt and take steps to fully staff KEAO and provide it with access to relevant tax administration information.
  • Amend legislation on installments to among others exclude those who fail to pay current obligations and introduce a requirement to shorten the duration for those with the capacity to pay earlier and market-based interest rates; The large debtor unit and KEAO will assess by September 2015 the large debtors with tax and social security debt above 1 million EUR to verify their capacity to pay and take corrective actions.
  • Intensify fight by the SGPR against tax evasion through checks on bank transactions, and deposits in banking institutions in Greece or abroad to identify undeclared income or wealth of Greek taxpayers, with a view to recover unpaid taxes, including through the full implementation of the register of bank account,
  • Take all appropriate and necessary measures towards the timely collection of several categories of public revenue, including automobile “KTEO” fines, uninsured vehicles and levies for the unlicensed use of frequencies;
  • Combat fuel smuggling, enacting via legislative measures arrangements for locating storage tanks (fixed or mobile), which are used to move contraband fuel around the country;
  • Adopt measures to prioritise tax audits on the basis of risk analysis and not, as is now the case, year of seniority (i.e. year of write-off). The write-off o f uncollectible debt will be put in place through legislation to focus collection on those cases more likely to produce revenues;
  • Strengthen VAT collection and enforcement inter alia through measures to combat VAT carousel fraud. The authorities will submit an application to the EU VAT Committee and prepare an assessment of the implication of an increase in the VAT threshold to €25.000.
  • Promote the use of electronic payment practices, making use of the EU Structural and Investment Funds to facilitate the adoption of these practices.

Public Financial Management:

The authorities commit to continue reforms that aim at improving the budget process and expenditure controls, clearing arrears, and strengthening budget reporting and cash management. The authorities will as yet adopted reforms on the income tax codes and tax procedures: introduce a new Criminal Law on Tax Evasion and Fraud.

The authorities will adopt second-phase of amendments to the Organic Budget Law (OBL) immediately. and issue all secondary legislation by November 2015, with effect from January 1, 2016, The Fiscal Council will be made fully operational.

The authorities will present a plan and will proceed with the clearance of arrears, tax refund and pension claims by the end of 2016. The Government will ensure that budgeted social security contributions are transferred from social security funds to health funds and hospitals so as to clear the stock of health-related arrears. By January 2016, the authorities will complete an external audit of EOPYY’s accounts payables, and implement follow-on actions to address bottlenecks in payment processes,

On health care, a number of measures will be taken immediately to: (i) re-establish full INN prescription, without exceptions, (ii) reduce the price of all off-patent drugs and all generics of the patent price, by repealing the grandfathering clause for medical supplies already in the market in 2012, and (iii) review and limit the prices of diagnostic tests to bring structural spending in line with claw back targets; and (iv) collect in the full the 2014 claw back for private clinics, diagnostics and pharmaceuticals, and extend their 2015 claw back ceilings to 2016.

Safeguarding financial stability

All necessary policy actions will be taken to safeguard overall financial stability and the authorities remain committed to preserve sufficient banking system liquidity in line with Eurosystem rules, including by the quarterly submission of funding plans to the Bank of Greece to ensure continuous monitoring and assessments.

The private management of the Greek banks will be respected, and the government will not intervene in the day-to day decision making and management of the banks, which will continue to operate under market principles. The Board members and senior management will be appointed according to the existing framework and in line with EU legislation and best international practices, taking into account the specific rules in the HFSF law as regards the rights of the private shareholders who participated in the banks’ capital increases under this framework. The independence of the HFSF will be fully respected and its governance structure unchanged. No fiscal policy actions will be taken that would undermine the solvency of the banks.

The Greek authorities will legislate reforms of the frameworks for corporate and household insolvency bringing them in line with international good practice; strengthen the judicial settings for insolvency including by introducing specialist chambers within courts and take steps to address the backlog of cases in the courts under law 3869; introduce a profession of insolvency practitioners, not limited to any specific profession and in line with good cross-border experience; will amend the out-of-court workout law; and will develop a comprehensive strategy for the financial system.

This strategy will aim to return the banks to full private ownership by attracting strategic international investors and to achieve a sustainable funding model over the medium term.

The authorities will further develop and swiftly implement a comprehensive strategy for addressing the issue of non-performing loans, drawing on the expertise of external strategic consultant(s) for both strategy development and implementation.  It will  also include the establishment of a permanent social safety net including support measures for  the most vulnerable  debtors and a temporary moratorium on auctions until end 2015, differentiating between strategic  defaulters and good faith debtors.

A forward-looking assessment of the banks’ capital needs will be done in the context of the next review.

Labour markets:

In recent years, important changes have been made to Greek labour market institutions and wage bargaining systems to make the labor market more flexible and effective, and they will not be reversed. The Greek authorities are committed to achieve EU best practice across the range of labour market legislations through constructive dialogue amongst social partners. The approach not only needs to balance flexibility and fairness for employees and employers, but also needs to consider the very high number of unemployed. This can be achieved by modernising legislation through a process of consultation with the social partners and benefiting from expertise of think tanks as well as international organisations such as the OECD and the ILO.

The authorities will review, through a consultation process, the existing frameworks for collective dismissals, industrial action, and collective bargaining taking into account best practices elsewhere in Europe. Further input to the review described above will be provided by international organisations, including the ILO. Following the conclusion of the review process, the authorities will bring the collective dismissals and industrial action frameworks in line with best practice in the EU by December 2015. Further, the authorities will take action to fight undeclared work in order to strengthen the competitiveness of legal companies and to protect workers as well as tax and social security revenues. By October 2015 the authorities will expand vocational education and training within the budgetary envelopes.

Product markets:

More open markets are essential to improve social fairness by curtailing rent-seeking and monopolistic behavior, which has translated into higher prices and lower living standards. The authorities will intensify their efforts to bring key initiatives and reform proposals to fruition, drawing on technical expertise of institutions including the OECD and World Bank. The authorities will legislate to:

  • implement all pending recommendations of the OECD competition toolkits I and II and by January 2016 the recommendations following the further work by the OECD in collaboration with the Greek authorities, w h i c h will include a variety of product markets and other areas of structural reforms. The authorities will also work with the OECD to review by January 2016 the implementation of the Competition Assessment and Administrative Burden exercises.
  • open immediately selected restricted professions, and by October 2016 the remaining ones, and liberalize specific markets including tourist related rentals and ferry transportation
  • eliminate reciprocal and non-reciprocal nuisance charges,
  • reduce red tape, including on horizontal licensing requirements of investments and on low- risk activities in collaboration with the World Bank and establish a committee for the inter- ministerial preparation of legislation. Looking ahead, by October 2015 the authorities will takes steps to facilitate trade and by December 2015 to improve land management, and by February 2016 will implement secondary legislation for the licensing law in collaboration with the World Bank and forthcoming OECD recommendations in agreed key sectors.


The Greek authorities are committed to approving and proceeding with an ambitious privatisation program.

The authorities are committed to proceeding with an ambitious privatization process, the implementation of which aims to generate annual proceeds (excluding bank shares) for 2015, 2016 and 2017 of EUR 1.4 bn, EUR 3.7 bn and EUR 1.2 bn, respectively. The authorities are committed to privatise all assets held by HRADF and to complete all government pending actions. Among other actions, the authorities will take immediate irreversible steps for the sale of the regional airports, and Hellinikon, transfer the state’s shares in OTE to the privatisation agency HRADF, finalise the terms for the sale of the Piraeus and Thessaloniki ports and of the train operator, and advance with the tender to extend the concession agreement in the Athens International Airport and sell shares. For real estate projects, the HRADF will set annual proceeds targets consistent with the overall privatisation revenue target.


The authorities will adopt the reform of the gas market and its specific roadmap, and implementation should follow suit. They will adopt and implement the reform of capacity payments and other electricity market rules, review PPC tariffs based on costs and notify NOME products.

The authorities will also continue the implementation of the roadmap to the EU target model in the electricity market , The authorities will prepare a framework for the support of renewable energies and implementation of energy efficiency and review energy taxation. The authorities will clear the public sector’s arrears to PPC and strengthen the electricity regulator’s financial and operational independence. The government will take irreversible steps (including announcement of date for submission of binding offers) to privatize the electricity transmission company, ADMIE. By November 2015, the authorities will introduce the NOME system of auctions; adopt and implementing secondary legislation and regulation for the gas reforms, and review energy taxation.

The Government will transpose the Directive 27/2012 on energy efficiency and introduce a new plan for the upgrade of the electricity grids in order to improve performance, enhance interoperability and reduce costs for consumers.

Public administration:

The authorities will adopt legislation for a unified wage grid reform effective 1 January 2016, in line with the agreed wage bill targets, including decompressing the wage distribution across the wage spectrum in connection with the skill, performance and responsibility of staff.

Secondary legislative acts needed to implement the new unified wage grid with a guaranteed starting point the salaries of each employee as of 31/12/2014, and legislation to rationalise the specialised wage grids, will be adopted by end- November 2015. The authorities will set a ceiling for the wage bill within the new MTFS, and the level of public employment consistent with achieving the fiscal targets and ensuring a declining path of the wage bill relative to GDP until 2019. They will align non-wage benefits across the public administration with EU best practices.

The authorities will review and implement legislation for hiring managers and assessing  performance of all employees, and complete the hiring of new managers by the end of the year. They will continue to identify past cases of illegal hires and temporary injunctions, and take appropriate enforcement action.


The authorities will legislate and implement the new Code of Civil Procedure in line with previous agreement. They will propose further actions to reduce the backlog of cases in administrative courts and to introduce a selective increase of court fees. The authorities will also continue to work closely with European institutions and technical assistance on the modernisation of the judicial system including initiatives in the area of judicial e- Government (e-justice), mediation and judicial statistics.


The     authorities  will update and publish a revised Strategic Plan against Corruption (TRANSPARENCY) in late July. To this end, it has set up a working group with participation from representatives from the Ministry of Justice and the General Secretariat for the Fight against Corruption.

The authorities will amend and implement the legal framework for the declaration of assets and financing of the political parties and adopt legislation insulating financial crime and anti-corruption investigations from political intervention in individual cases. They will also ensure proper coordination and sharing of information between investigation bodies through a Coordinating Body of Finance Prosecutors and of Corruption Prosecutors.


The Greek authorities will adopt legislation to strengthen the governance and independence of ELSTAT, and ensure its proper access to administrative data.

Annex B

Source: Fortune magazine to view click here

(Source: https://fortunedotcom.files.wordpress.com/2015/07/dsa.pdf/ )

“Preliminary Debt Sustainability Analysis for Greece”

This note, produced by the staff of the European institutions, summarizes their views and those of the IMF staff. It presents a preliminary debt sustainability analysis of Greece assuming a Staff Level Agreement (SLA) and an extension of the current EFSF financial assistance programme for five months. During this period financial assistance in the form of EFSF disbursement (including redirection of the HFSF buffer), SMP profits transfer and IMF disbursement would be provided. It first recalls the parameters of the 2012 EG agreement, then looks at the current estimates of the debt/GDP level at the 2020 and 2022 horizon depending on different assumptions, and then, as a complement, examines gross financing requirements for assessing debt sustainability in light of the specificities of the structure of the Greek debt. A more detailed DSA will be presented at the full closure of the review.

  1. The 2012 EG framework for debt

The 2012 EG framework agreed on a number of measures to ensure that Greece can reach a debt-to-GDP ratio of 124% in 2020, and in 2022 a debt-to GDP ratio substantially lower than 110%. It also agreed to consider further measures, if necessary, for achieving a credible and sustainable reduction of Greek debt-to-GDP ratio, when Greece reaches an annual primary surplus, as envisaged in the current MoU, conditional on full implementation of all conditions contained in the programme. The Eurogroup of 20 February 2015 reaffirmed the commitment to this framework.

Greece has already benefitted from a number of debt reducing measures. Conditions on the GLF have been revised three times (extension of the grace period and maturities, reduction in interest rates). Conditions on EFSF have been amended in 2012 (extension of maturities, cancellation of fees and deferral of interest rates payments). Moreover, the Eurogroup committed to transfer the profits of SMP and ANFA. Overall, these measures already imply a direct reduction of financing needs over the next decade and correspond to an economic debt relief, in net present value terms, from a market perspective. It should also be noted that interest payments of Greece are comparable to those of less indebted countries (Italy, Portugal for instance). Finally, the PSI operation led to a reduction of around EUR 100bn of public debt in March 2012 (52% of 2012 GDP).

  1. Current situation with respect to DSA

It is clear that the policy slippages and uncertainties of the last months have made the achievement of the 2012 targets impossible under any scenario. The main factors behind the deterioration of the DSA are the worsening of economic growth, the revised primary balance path, the lower privatisation revenues and possible additional financial needs for the banking sector.

  1. DSA under different scenarios

For this preliminary DSA, three scenarios are presented. The first assumes full implementation of programme reforms and corresponding growth effects; the second assumes partial reform compliance, among others regarding privatization, resulting in a 0.5% lower growth path and a higher risk premium (0.6%). The third scenario reflects the IMF’s baseline. Further work is under way to reconcile the scenarios.

Under all scenarios, debt to GDP ratios are on a declining path but remain substantially above the Eurogroup November 2012 targets described as “well below 110% by 2022”.

 ASSUMPTIONS   2015 2020 2022 2030  
  Scenario A 172.8 137.5 124.0 85.0  
Debt to GDP ratio (%) Scenario B 174.3 146.5 135.0 100.9  
  Scenario C 176.7 149.9 142.2 118.0  
  Scenario A 1.0 3.5 3.5 3.5  
Primary surplus (%GDP) Scenario B 1.0 3.5 3.5 3.5  
  Scenario C 1.0 3.5 3.5 3.5  
Privatisation proceeds (€bn), Scenario A 1.4 15.2 22.0 26.8  
Scenario B 0.4 9.2 16.0 20.8  
  Scenario C 0.5 3.0 4.0 4.0  
Nominal GDP growth Scenario A -0.6 4.1 4.1 4.0  
  Scenario B -1.2 3.5 3.5 3.5  
  Scenario C -1.2 3.7 3.5 3.5  
Re-financing rates (%) Scenario A 1.4 5.1 4.9 4.1  
  Scenario B 1.4 5.4 5.2 4.7  
  Scenario C 1.4 6.3 6.3 6.3  

Note: All scenarios assume a new 3-year programme with concessional financing. Debt ratio would be higher if additional needs for bank recapitalisation are needed.

  1. The Role of Financing Needs

Focusing on the debt-to-GDP level does not allow to capture the structure of debt and per se is not accounting entirely for the measures taken for the European financial support to make Greek debt sustainable. This aspect can better be assessed by the gross financing needs of a country, which captures its payment structure over time. Lower gross financing needs imply better market access and less financial stability risk.

This gross financing need metric points to no sustainability issues under the first two scenarios. The gross financing needs remain well below 15% threshold, a threshold mentioned in IMF guidance for this criterion. Under this scenario c), significant reprofiling of the stock of debt and concessional lending terms would improve sustainability. Reprofiling of payment flows does not imply nominal haircut or budgetary costs for creditors. This would also entail further NPV gains for Greece, and strengthen the sustainability of the Greek public debt in the long-run.


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