I read the 53-page leaked draft preliminary agreement between Greece and its creditors.

And squeezed it into this article just for you.

As you’ve probably heard, the last six months Athens and its creditors are trying to reach a deal on a package of reforms required to release the next tranche of Greece’s €86-billion bailout program, the European Central Bank said last week, confirming an earlier statement by Greek Finance Minister Euclid Tsakalotos. But we don’t have a deal yet. As Reuters reports:

“The International Monetary Fund’s discussions on Greece’s debt are ongoing and no deal has been reached, IMF spokesman William Murray said on Thursday.”
Euclid Tsakalotos / Photo: Panayiotis Tzamaros

Earlier this month Mr. Tsakalotos agreed on extended budget cuts so our creditors can give us the bailout money, and what our Finance Minister wants back is IMF to take it easy with the Greek debt which now stands for 179 of our GDP. As William Murray IMF spokesman told reporters today:

“Discussions on the debt side of the equation have only just started, so it’s really early. {…} Our position hasn’t changed.” “We’re still in discussions on that and of course the debt discussions affect the primary surplus over the horizon, so until these things fall into place, I can’t really comment.”

The draft bill needs to be ready until the 12th of May and then it needs to be voted under an emergency parliamentary procedure until May 19th, a few days before the next Eurogroup which is the 22nd of May. Greece has to legislate fast, so Prime Minister Alexis Tsipras told his party MPs this weekend:

“After five years of promises … our lenders are faced with the obligation to immediately adopt substantial measures to reduce the debt”.

On Monday German newspaper “Handelsblatt” leaked the draft preliminary agreement A.K.A. 4th Memorandum of Understanding between the Hellenic Republic and its creditors. A particularly important leak because now we know what kind of deal will be voted by our lawmakers.

Greece’s Parliament. Photo: Panayiotis Tzamaros / FOS PHOTOS

Here’s last year’s leaked document:

And here we go.

The implementation of the reform agenda and its policies is build around 4 pillars.

Restoring fiscal sustainability:

“Greece will target a medium-term primary surplus of 3.5 percent of GDP to be achieved through a combination of upfront parametric fiscal measures. An ambitious programme to strengthen tax compliance and public financial management, and fight tax evasion, while ensuring adequate protection of vulnerable groups, supports this. The authorities also have to create an autonomous revenue administration to secure effective revenue collection.”

Safeguarding financial stability:

Further measures are needed to tackle the large stock of Non-Performing Loans beyond the adopted legislation on loan market (servicing, sales) and step-up of supervisory monitoring and measures. Debtors and creditors need an effective and efficient out-of-court and in-court debt restructuring and insolvency framework to reduce the debt overhang vis-à-vis both public and private creditors. Banks and the public sector need to speed up the restructuring of debts and the liquidation of non-viable businesses to support the recovery of the economy along with the gradual phasing out of capital controls.”

Growth, competitiveness and investment:

“Greece will design and implement a wide range of labour and product market reforms that not only ensure full compliance with EU requirements, but which also aim at achieving European best practices. The authorities will continue to implement an ambitious privatisation programme, and a new independent Privatisation and Investment Fund (HCAP) has been established supporting a more efficient use of resources. Policies which support investment shall be framed within a comprehensive Growth Strategy.”

A modern State and public administration:

“Particular attention is being paid to the implementation of reforms to increase the quality and efficiency of the public sector in the delivery of essential public goods and services. Measures will be taken to enhance the efficiency of the judicial system and to upgrade the fight against corruption. Reforms will strengthen the institutional and operational independence and effectiveness of key Institutions and agencies such as the statistics institute (ELSTAT), the Hellenic Competition Commission and other regulatory agencies.”

What we learn from the document is that:

Greece must benefit fully from the substantial means available from the EU budget and the European Investment Bank (EIB).

For the period 2007–2013, Greece was eligible for EUR 38 billion in grants from EU policies, and should ensure that all projects funded under that financing envelope are completed as planned and no later than March 2017 according to the EU regulations. For the 2014–2020 period, more than EUR 35 billion is available to Greece through EU funds and Greece should continue in its effort to maximise and speed up absorption of this envelope. The European Commission’s Investment Plan for Europe and the EBRD will provide additional sources of investment, as well as technical help for public and private investors to identify, promote and develop high-quality and feasible projects to fund, and “the Greek authorities and operators should make full use of this opportunity.”

And now we get deeper into:

A) Fiscal stuff.

The general government primary balance in programme terms reached 4.2% of GDP in 2016, up from 0.5% of GDP in the previous year, significantly outperforming the 0.5% of GDP programme target. The hard part is that primary surplus target of 3.5% of GDP should be maintained until 2022.

How come Greece made so much money during last year?

The largest contributions on the revenue side came from the corporate income tax, VAT, and non-tax revenue, while the main expenditure shortfall was registered in investment spending and intermediate consumption.

Under the baseline scenario that assumes all measures legislated in the context of the first review are implemented on time and have the expected yields, “a fiscal gap of up to 0.3 percent of GDP by 2018 is projected”, absent any additional measures.

So in order to close this 0.3% fiscal gap, “parametric measures” need to be adopted by the Greek government. These are the following:

• the streamlining of welfare benefits and the abolition of tax expenditures yielding 259 million EUR in 2018;
• the legislation of a tax on short-term tourist accommodation rentals yielding 48 million EUR in 2018.
And the rationalization of:
• the performance incentives in the public sector wage bill yielding 33 million EUR in 2018;
• certain allowances in military sector, yielding 7 million EUR in 2018.

And if we make it the more money goes into social welfare:

“If annual budgetary outturns confirm that the above measures are leading to permanent fiscal over-performance vis-à-vis the programme targets, the authorities may — in agreement with the Institutions — consider the use of the available fiscal space to strengthen social protection (in particular the GMI programme) and/or to reduce the tax burden provided that the achievement of fiscal targets is assured.”

And when it comes to tax policy reforms:

“As prior actions for the review the government commits to complete the assessment of a possible increase in the VAT threshold.”

But there is not only this possible increase of VAT that means more expensive products, there are more cuts in pensions and income.

“In support of rebalancing the budget towards more growth-friendly and distributionally just policies, the authorities will agree and legislate a pension reform and a personal income tax reform to be implemented and both delivering net savings of 1% of GDP.”

This will give us a targeted spending package matching in net terms the yield from the pension reform composed of an increase in spending on targeted welfare benefits (housing allowance; child benefits; school meals; nursery/pre-school education; means-tested reduction in health co-payments) 0.7% of GDP.

Public revenue reforms

Since we all know, our creditors know as well that: “revenue collection has been hampered by complicated legislation, poor administration reflected by chronically weak enforcement, political interference and generous amnesties.” So the country can have systematic revenues again the authorities have decided to complete the establishment of the Independent Authority of Public Revenue, improve customs efficiency, the fight against tax evasion and public revenue collection and debt management, fight smuggling, and centralize the collection of social security contributions into a single social security fund (EFKA)

Combating tax evasion will be based on an effective interagency cooperation which includes:

a) identification of undeclared deposits by checking bank transactions in banking institutions in Greece or abroad;
b) requesting from EU Member States to provide data on asset ownership and acquisition by Greek citizens, and how the data will be exploited;
c) pursuing work with technical assistance in tax administration and making full use of the resources in capacity building;
d) establishing a wealth registry in the IAPR in close coordination with the currently developed registry of bank accounts, to improve monitoring;
e) concrete steps to ensure the collection of tax on incomes generated on off-shore portfolios of individuals;
f) domestic exchange of information between the Financial Intelligence Unit (FIU) and the tax administration to better assist the tax authorities in the use of financial intelligence to inform the tax audit strategy and facilitate debt collection.”

To improve the collection of tax debt the authorities will produce a national collection strategy which includes:

“assessment of the treatment of debtors carrying debt to public creditors and amendment of the legislation as necessary to allow debt restructuring aiming at restoring the financial viability of the debtor, to be implemented by July 2017”
“publication of the yearly update of the list of large tax debtors, with the next publication to be done by September 2017,”
“the commitment, necessary to improve payment compliance, not to introduce new instalment or other amnesty or settlement schemes nor extend existing schemes and to take immediate enforcement action regarding debtors who fail to pay their instalments or current obligations on time (continuous action).”

The anti-smuggling strategy implementation:

“will include the fight against fuel smuggling and the full and timely implementation of the joint ministerial decision taken to combat fuel smuggling and its measures for locating storage tanks (fixed or mobile) and for installing the inflow-outflow system. So, authorities will install and operationalize the Operational Coordination Centre against Excisable Product Smuggling by June 2017, by ensuring it is fully staffed, have access to IT systems and a detailed business plan is agreed.”

To improve social security debt collection:

“the authorities will publish regularly the list of large debtors for social security debt, starting from May 2017. They will, by May 2017, provide a draft Joint ministerial decision (JMD) specifying the necessary procedures for the implementation of the provision.”

B) Social Welfare stuff.

Pensions

So Greece can strengthen long-term sustainability while targeting savings of around 1 percent of GDP by 2018, pensioners need to pay one more time. And here come the bad news for the elderly. The authorities will:

Eliminate EKAS. Phase out the solidarity grant (EKAS) for all pensioners by end-December 2019, reducing it by €570 million by 2017; €808 million by 2018; and €853 million by 2019.

Also they will merge different existing social security funds into EFKA, a new fund that will “lead to efficiency gains including through a reduction of overall staff” according to the document.

The authorities will by end-March 2017 merge all insured persons and related data into EFKA. To this end, the authorities will ensure that all other social security funds — with the exception of the welfare functions of OGA, the guarantee and credit functions of TSMEDE and the functions of NAT not related to pensions — will be closed down. All existing governance and management arrangements of these funds will be abolished no later than April 2017. The authorities will further ensure that by December 2017 EFKA can maintain automatic electronic records on service history for retirees (key deliverable). A similar record shall be created in EFKA also for insured persons. The authorities will record data on insured persons targeting those with longer service history ensuring that 50% of the relevant data are entered in the system by December 2017, and the remaining 50% by August 2018.

Health

The bad news.

The authorities will take structural measures focusing on improving efficiency as a means to contain expenditure. These measures will i) address and eliminate half (125 million) of the recent overspending on “other items” in the EOPYY budget for “Other Illness Benefits” by 2017 and the remaining half (125 million) by 2019; and ii) ensure that in 2017 the estimated gap between spending and the respective claw back ceilings, i.e. the amount clawed back, on pharmaceuticals, diagnostics and private clinics for 2017, is reduced by at least 30 percent compared to the previous year.

The good news.

“The authorities will closely monitor and fully implement universal coverage of health care and inform citizens of their rights in that regard and proceed with the gradual implementation of the new Primary Health Care System. To this end, the authorities will adopt all the necessary legislation to implement this new system by May 2017. Within this framework, EOPYY will change the way it provides primary health care by introducing compulsory patient registration with a family doctor, who will act as a gatekeeper in charge of referrals to specialists. This shall become fully operational (key deliverable) by 1st January 2018.”
“In parallel, the roll-out of Local Health Units will start by June 2017, as a first step of the planned creation of at least 240 Local Health Units in the coming 2 years (by June 2018). As new Local Health units become operational, the existing contractual arrangements of EOPYY with private GPs will be correspondingly reduced so as to avoid duplications in the local provision of primary care.”

According to the document Greek hospitals need to be “cost effective” and financial management needs to be introduced. So the authorities will:

“monitor warranted and unwarranted access to emergency care and, If needed, introduce measures to control and discourage unwarranted access in order to guarantee effective provision of emergency care”
“by June 2018, reduce waiting times (including for elective surgery) in line with other EU countries and reduce unwarranted variation in waiting times across providers and patients (including across socio-economic and other patient characteristics)”
“by June 2017 deliver a plan to adopt DRG (Diagnosis related Groups) or other international standard activity-based costing methodology in all hospitals and document progress towards the implementation”

Social safety nets and activation

The economic crisis has had an unprecedented impact on social welfare. The most pressing priority for the Government remains to provide immediate support to the most vulnerable to help alleviate the impact of the crisis.

A fairer society will require that Greece improves the design of its welfare system in line with EU best practices, so that there is a genuine social safety net which targets scarce resources to those in most need. The authorities plan to benefit from available technical assistance provided by international organisations for both the social welfare review and the implementation of the guaranteed minimum income scheme named ‘Social Solidarity Income’ (SSI).

The SSI was rolled out at national level in February 2017.

BUT there are more cuts:

i. the elimination of benefits overlapping with the SSI or family benefits saving €8.5 million in 2017 and €10 million in 2018;
ii. a reduction of the heating allowance benefit in 2018 achieving savings of €58 million;
iii. a streamlining of regressive tax expenditures saving €189 million in 2018;
iv. the unemployment benefit for those entering the labour market, saving €1.5 million in 2017 and €2 million in 2018.

C) Financial Stability Stuff

Which means normalising liquidity and payment conditions and strengthening capital, addressing Non Performing Loans, a huge issue in the local banking system, enhancing governance and promoting awareness and financial literacy of borrowers. So more cash flowing in and safeguarding it.

As a prior action, the BoG and the MoF will prepare and publish the roadmap for the relaxation of capital controls. The roadmap will outline the broad sequencing of the steps toward the full liberalisation of restrictions avoiding undue delays, without compromising financial stability, with steps linked to measurable signs of improving market confidence and liquidity conditions, as well as to the implementation of key Programme policies. The banks should keep adequate cash buffers to facilitate the smooth implementation of the relaxation of capital controls.
“As a prior action, the authorities will introduce legislative provisions to ensure: (a) that actions taken in relation to debt restructuring — either under the Out-of-Court Workout (OCW) framework or outside of it — by either private or public officials, in good faith, to the best interest of the creditor they are representing and in compliance with the applicable procedures and objective criteria, are considered legitimate as far as civil or criminal liability is concerned, according to the general principles and the safeguards of the existing legal framework and (b) that sufficient procedural safeguards are enacted to prevent the unwarranted pressing of charges in that context. The applicable procedures may include additional safeguards for cases concerning very large debtors.”

This means that private and public officials involved in debt restructuring will be untouched by justice in case of fraud. Right?

D) Competitiveness and growth stuff.

This is probably no news to you but working conditions in Greece are abysmal with almost half of people under 35 to be unemployed and with official statistics bringing unemployment up to almost 30%. In recent years, major changes have been made to Greek labour market institutions and wage bargaining systems to make the labour market more flexible. In the document we are reading that:

“The Greek authorities are committed to achieve EU best practice across labour market institutions and to foster 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 level of unemployment and the need to pursue sustainable and inclusive growth and social justice.”

And new labour policies like the following one will be introduced:

“after the legally required relevant consultations with the workers’ representatives, (the company) may submit a ‘social plan’, outlining the possible accompanying measures foreseen to limit the social consequences of the dismissals, in line with the economic possibilities of the enterprise. The social plan may include measures for redeploying or retraining workers being made redundant, the provision of counselling and outplacement services, training, redundancy payments other than those arising out of national legislation, and the commitment to re-hire first the workers dismissed when economic conditions improve.”

Greece also will have to create a digital registry for trade unions, review the list of justified reasons for terminating the contract of workers under protection as trade union members, rationalise the system of trade union members’ leave benefits. And when it comes to strikes:

“As a key deliverable for the next review, the authorities will analyse and adopt legislation to increase the quorum for first-degree unions to vote on a strike to 50 percent.”

The document also informs us that shops will remain open on Sundays.

“as a first step toward addressing the OECD Toolkit I recommendation on Sunday trade and in line with the Council of State (CoS) ruling, the authorities will amend law 4177/2013 by removing the restrictions on the size and type of shops that can operate on Sunday.”
Reactions to to the upcoming reforms in labor conditions. Photo: Panayiotis Tzamaros / FOS PHOTOS

Education.

In agreement with the institutions, Greece will have to:

“prepare a comprehensive report on the needs for resources of schools and universities, adopt a strategy on initial and continuous teacher training in pre-primary, primary and secondary education, pass a law on upgrading the bodies responsible for evaluations. In addition, the authorities will pass a law on the evaluation of senior education staff, school self-evaluation and rational use of resources by June 2017"

Greece will also have to pass a law on higher education by September 2017. This means upgrading the last two years of high school and redesign university entrance examinations to be implemented in 2019–2020. We read in the document:

“The authorities will agree with the institutions all of the fiscal aspects of any change in the organisation of secondary education and university entrance. In particular, by November 2017, the authorities commit to the adoption of the number of teaching hours per staff member, and the ratios of students per class and pupils per teacher to the best practices of OECD countries to be achieved by the beginning of the 2018–2019 academic year.”

Energy

“The Greek energy markets need wide-ranging and structural reforms to bring them in line with EU legislation and policies, make them more modern and competitive, reduce monopolistic rents and inefficiencies, promote innovation, favour a wider adoption of renewable energy and gas, and ensure the transfer of benefits of all these changes to consumers.”

Water utilities

“The Athens Water Company (EYDAP) and the Thessaloniki Water Company (EYATH) will launch a process of preparing business plans, including for investments and key capital projects for the next five years.”

Transport

“the authorities will (i) as a prior action finalise the terms of reference for a general transport master plan for Greece covering all transport modes (road, railways, maritime, air and multi-modal, including logistics aspects).”
“The authorities will complete by June 2017 the restructuring of procurement and HR departments of Athens Bus Company (OSY) and Athens Urban Rail Transport (STASY) in agreement with the Institutions and according to the revised Action Plan of Transport for Athens (OASA).The authorities will undertake reforms to increase the efficiency and viability of the urban bus transportation in Thessaloniki (OASTH).”

Privatisations

According to the action plan “Privatisations can help to make the economy more efficient and contribute to reducing public debt.”

“The Government and the Hellenic Republic Asset Development Fund (HRADF or TAIPED) have taken important steps in advancing the privatisation programme forward (e.g., completion of the transaction on the regional airports, the conclusion of the Pireaus Port (OLP) privatisation, launching of Egnatia motorway concession tender, financial closing of Astir) and are committed to proceed with the ambitious, ongoing privatisation programme of HRADF.”
“The implementation of this programme aims to generate further annual proceeds (excluding bank shares) for 2017 and 2018 of 2.2 billion euros and 2.3 billion euros, respectively, on top of 300.000.000 and 500.000.000 euros collected in 2015 and 2016 respectively.”
“HRADF will launch procurement processes to hire advisors for the key remaining tenders of the ADP including Hellenic Petroleum (HELPE); the electricity company (PPC), the gas company (DEPA), the water companies for Thessaloniki and Athens (EYATH, EYDAP, respectively), the telecom company (OTE) and the 30% stake in the Athens International Airport.”
“A new privatisation and investment fund, the Hellenic Corporation of Assets and Participations (HCAP), which will have in its possession valuable Greek assets. The overarching objective of the Fund is to manage valuable Greek assets; and to protect, create and ultimately maximize their value which it will monetize through privatisations and other means. The Fund is established in Greece and be managed by the Greek authorities under the supervision of the relevant European Institutions.”

Public administration

According to the document Greece’s administration system is way to old-school and have many weaknesses so Greek officials need to work closely with the European Commission, “for capacity-building and de-politicizing the Greek administration.” So there will be a three-year strategy for reform that includes:

the reorganisation of administrative structures; rationalisation of administrative processes; optimisation of human resources; strengthening transparency and accountability; e-government; and a communication strategy. It shall provide for
(a) stronger coordination of policies, HR planning to timely asses and fulfil the hiring needs; strengthening of policy units in key sectors;
(b) a substantial upgrade of the role of local government at both tiers with a view to reinforcing local autonomy and rationalising the administrative structures of local authorities;
(c) rationalisation of SOEs and locally-owned enterprises;
(d) modernization of recruitment procedures;
(d) improved mobility in the public sector to promote better use of resources.

Justice

The authorities will implement the three-year strategic plan for the improvement of the functioning of the judicial system. The plan encompasses key actions aimed at enhancing judicial efficiency, speeding up judicial proceedings and addressing shortcomings in the functioning of courts such as, but not limited to, collecting information on the situation of the courts, computerization, developing alternative means for dispute resolution, such as mediation, rationalizing the cost of litigation and improving in court functioning and court management. This means that authorities will have to:

Integrate in the growth strategy the three-year strategic plan for the improvement of the functioning of the judicial system, since timely, efficient and reliable justice is a key driver for growth, and implement the plan according to its schedule;
improve e-justice, mediation and judicial statistics and disseminate the relevant information to the legal practitioners and the public at large, so as to increase awareness of the availability of these mechanisms and encourage their use (February 2017).
Court Fees will be rationalised and a selective readjustment of court fees will be introduced (by introducing increases or decreases, as appropriate), as well as increase transparency and ease of online reference through a user-friendly web platform in this regard (December 2016)”.
The authorities will propose measures to ensure access to justice by vulnerable persons (February 2017)”.
The authorities will adopt measures to reduce the backlog of cases in administrative courts (December 2016).
a long-term plan of codification of the main legislations which will be proposed by September 2017 and fully implemented by the end of 2018.
the creation of a publicly and freely accessible electronic portal giving access to legislation, both in the form published in the Gazette (FEK form) and in the consolidated version of the various provisions by June 2018.

Anti-corruption

Three actions will be taken.

“the authorities will implement the legal framework for the financing of the political parties, notably by ensuring publication of the report from the authority in charge of controlling the financing of the 2015 elections by May 2017.”
“amend the legal framework for the financing of the political parties on key weaknesses such the anonymous donations, the limitation on seizures and transferability of public financing, the absence of definition of tax deductibility rates in the income tax code, the rules for timely submission and for publication of information.”
“adopt legislation insulating financial crime and corruption investigations from political intervention in individual cases in particular by amending the provisions.”

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