The key elements of the draft agreement between Greece and lenders

EconomyProgramme Tags: Labour, NPLs, Pensions, Privatisations, Reforms
Photo by Panayiotis Tzamaros/Fosphotos
Photo by Panayiotis Tzamaros/Fosphotos

During the second round of meetings between the institutions’ mission chiefs and the Greek government, a draft supplemental memorandum of understanding (sMoU) was prepared.

It is the basis of what had been agreed until then (November 18) and the issues that require further discussions with the aim to clinch an agreement on the second review at the December 5 Eurogroup.

We present the key highlights of this document obtained by The Greek Report, relating to four areas: restoring fiscal sustainability, safeguarding financial stability, growth, competitiveness and investment and a modern state and public administration.


On the fiscal front, the draft sMoU clearly states that the primary surplus targets remain at 3.5 percent of GDP for 2019 and 2020, while there is a fiscal gap for 2017 and 2018 that is not quantified.

Based on those targets, the government has to table the Medium-Term Fiscal Strategy (MTFS) 2017-2020 supported by a number of additional measures that have to be voted in the Parliament.

Those measures, which are not quantified in the document, include:

1) Rationalisation of welfare benefits based on the recommendation of the social welfare review

2) Abolition of certain tax credits such as the withholding tax discount of 1.5 percent for personal income tax and the personal income tax credit for medical expenses, both from 2017 and the abolition or increase of the special tax for sea-farers.

3) Implementation of measures for a reduction in the spending of the national health care provider (EOPYY)

4) Legislation of a tax on short-term tourist accommodation (airbnb)

5) Additional measures to be identified after the spending review or in other areas of non-discretionary spending

6) Additional permanent measures to be specified

The draft sMoU notes that the MTFS 2018-2021 has to be legislated by May 2017.

In the context of tax policy reforms, the document notes that the government committed to review the tax law on mergers and acquisitions as well as all corporate income tax incentives and integrate tax exemptions eliminating those deemed inefficient or inequitable, extend the temporary voluntary contributions of the shipping community to 2018. 

Moreover, the “objective” property prices for tax assessment will be aligned with market prices by June 2017, which is crucial for the calculation of the single property tax (ENFIA).

As a prior action, the government has also to pass legislation for the promotion and facilitation of electronic payments, noting that installation of POS should reach a target of 80 percent in the category of professionals defined as high-risk tax evaders.


On the labour front, despite rumours of limited progress and significant divergence between the government and lenders, the document reveals that in most issues an agreement has been reached.

Specifically, on collective bargaining the issue of extension in still open. However, the two sides have agreed on a revision of the number of members required to establish a trade union at firm level, while for companies where there is no established trade union, at least 60 percent of the workforce should be represented in order to have the right to bargain.

On the burning issue of mass layoffs, the draft sMoU clarifies that the thresholds will have to be aligned to the 98/59/EC directive. 

According to this directive, the number of redundancies over a period of 30 days is set to at least 10 in companies employing more than 20 and less than 100 workers, at least 10 percent of the workforce for firms employing between 100 and 300 employees and at least 30 for enterprises employing more than 300 workers. The same directive notes that over a period of 90 days the number of mass layoffs may exceed 20 regardless of the number of employees.

The draft sMoU also notes that the current system of ex-ante approval of mass layoffs by the public authority will be replaced with an administrative notification system to ensure compliance with the legal requirements of information and consultation of workers. In addition, consultation with the employees’ representatives shall last up to 30 days.

Regarding the third key labour area of industrial action, the issue of lockout is still open, while it has been agreed the creation of a digital registry for trade unions and the review of the protection level for trade union members, including a list of justified reasons for terminating the contracts of workers under protection.


Following the pension reform, the draft sMoU underscores that all social security funds should be merged into the new single body for social security (EFKA). 

In addition, the elimination of the solidarity grant (EKAS) will result in cost savings of 570 million by 2017, 808 million by 2018 and 853 million by 2019, while all existing pension have to be recalibrated on the basis of the new uniform pension rule applied to pensionable earnings. 

Moreover, at least 35 percent of all pensions application submitted between May 12 and October 31 have to be recalculated and processed by the end of February 2017.

Financial stability

Another area of significant importance is the one on the financial system and capital controls. In specific, the draft stresses that starting from December 2016 the Bank of Greece (BoG) will send a quarterly report to the institutions including key statistics related to capital controls and liquidity as well as its assessment and proposals for actions.

As a key deliverable for January 2017, MoF and BoG will have to publish a roadmap for the relaxation of capital controls outlining the steps forwards the full liberalization of restrictions.

On the crucial issue of non-performing loans (NPLs), BoG and the Hellenic Financial Stability Fund (HFSF) will have to identify by February 2017 any changes necessary to expedite the approval and licencing process. By the end of this year, BoG will also decide on at least five applications for NPL servicing licences.

In addition, BoG will publish a quarterly aggregated summary report starting from November 2016 on the developments regarding Greek banks’ NPL strategies and targets. Supporting the banks’ efforts to meet their NPL reduction targets, the government will reduce by the end of December the existing tax disincentives related to loan loss provisions and write-off policies.

On the issue of the out-of-court workout, the draft sMoU reveals an agreement has been reached allowing for both large and small debtors (with debt above a minimum threshold) with unpaid obligations to the state, social security funds and the private sector to be included in the mechanism. The specifics of the workout will be detailed in the technical MoU. 


Regarding the energy sector, the share purchase agreement for the sale of a 24 percent stake in the electricity transmission operator (ADMIE) has to be signed. In addition, the state will contribute 51 percent of ADMIE to the new privatisation and investment fund (HCAP), while the remaining 25 percent stake will be listed in the Athens Stock Exchange.

In case of lack of sufficient progress to the agreed timeline, ADMIE should be fully privatised by September 2017.

The draft sMoU also urges the government to ensure the completion of the sale of the natural gas grid operator (DESFA) under the current tender, while the Hellenic Republic Asset Development Fund (HRADF) will launch the expression of interest for the sale of a stake of 30 percent of the Athens International Airport in March 2017.

Public administration

On the public administration, the draft document foresees the introduction of a new permanent mobility scheme, rationalisation of specialised wage grids (without quantifying the cost savings) and implementation of the reformed performance assessment scheme by June 2017. 

Moreover, the MTFS 2017-20 will establish ceilings for the wage bill and the level of public employment ensuring a declining trend of the wage will relative to GDP by 2018, also through the use of the attrition rule starting from 1:5 in 2016 to 1:4 in 2017 and 1:3 in 2018.