Definition of government activities

1. General government is largely defined consistently with Government Finance Statistics (GFS) principles, but is not well covered in the budget process. The units of general government are listed in Box 1. Government activities are clearly distinguished from those of financial and nonfinancial corporations. However, not all fiscal activity of general government is well reported. Consolidated information on municipal expenditure and revenue, the social security sector, and public entities part of general government, is not available in the budget documentation. The budgets of 11 “off-budget” funds are co-published with the budget, but the rationale for the presentation outside the budget of most of them is unclear. The budget of these funds is not subject to normal parliamentary authorization. General government also comprises some 149 extrabudgetary social security and pension funds. The budgets of these funds are approved by their boards, and by the Minister of Labor and Social Affairs (MLSA) and the Minister of Economy and Finance (MEF).

Box 1.

General Government in Greece

¹Including transfers to central government units with individual budgets and transfers to local government.

	Expenditure as Percent of GDP 2004 (gross)	Expenditure as Percent of GDP 2004 (consolidated, net of transfers to other general government units)
General government in Greece comprises the following :
Central Government Units Covered by the Budget
1. Parliament, the Presidency, the Judiciary, 17 ministries, 13 regions	39.2 1	29.1
2. Public Entities with Individual Budgets Classified Within
Central Government Sub-sector
Social Securities Funds and Hospitals	20.8	17.9
3. 149 social security and pension funds
5. 133 medical establishments
Local Government
6. 1033 municipalities and villages	2.9	2.8
		===
Total General Government		49.8

¹Including transfers to central government units with individual budgets and transfers to local government.

View Table

	Expenditure as Percent of GDP 2004 (gross)	Expenditure as Percent of GDP 2004 (consolidated, net of transfers to other general government units)
General government in Greece comprises the following :
Central Government Units Covered by the Budget
1. Parliament, the Presidency, the Judiciary, 17 ministries, 13 regions	39.2 1	29.1
2. Public Entities with Individual Budgets Classified Within
Central Government Sub-sector
Social Securities Funds and Hospitals	20.8	17.9
3. 149 social security and pension funds
5. 133 medical establishments
Local Government
6. 1033 municipalities and villages	2.9	2.8
		===
Total General Government		49.8

¹Including transfers to central government units with individual budgets and transfers to local government.

2. Parliament is only provided information on, and asked for approval of, the transfer of grants and contributions to these funds from the state budget, without a due presentation of their overall budgets.¹ This is despite the fact that the activities and funding of these funds are fully regulated by central government. In fact this practice disregards the possibility to change benefits and or contributions, and thus influence the fiscal position of central government. During the budget year, Parliament is informed about the planned expenditure, revenues, and balance sheet of these funds for the ongoing year, however, still without much descriptive analysis (see Box 2 on the Social Budget on page 18). The larger public sector contains some 2,600 public entities. A substantial part of these entities are either mostly dependent on grants from central government, or their revenues are largely regulated by law or lower legislation, and, in terms of the expenditure, they are engaged in implementation of government policy. Examples of such public entities are universities and hospitals. While best practice does not require such institutions to be incorporated individually in the state budget, there should be consolidated information on expenditure and revenues—in some detail—of distinct groups of these entities, not only of the individual grants received, to make an assessment of the appropriateness of the grants possible. The consolidated, gross expenditure and revenues of these public entities is now only prepared ex post for reporting to Eurostat and IMF. The definition of government activities is consistent between the MEF and the central bank, the Bank of Greece (BOG). To facilitate parliamentary oversight, apart from consolidated information, data should be included on individual categories of key revenue and expenditure categories, the overall balance, key financing sources (including arrears and debt), as well as the financial position of the entities including reserves and capital base.

3. The relationship between government and public nonfinancial and financial enterprise is generally well defined, but specific policies and interventions need to be made more transparent. In general public enterprises have been established as companies under private law (societés anonymes), with the government as full or partial shareholder. A number of public enterprises are further regulated by their founding acts, describing the rights of the sectoral minister and or the minister of finance to direct, control, and limit their activities. Importantly, these rights imply the ability to have public corporations carry out quasi-fiscal activities (QFAs), i.e., activities supporting government policy aims, which would not be undertaken if the corporation was solely functioning on the basis of commercial incentives. An obvious way to effect QFAs is by regulating pricing policies and influencing investment and operational decisions. For example, the Hellenic Railways Organization (OSE) has numerous obligations toward the Minister of Transport on the basis of its establishment act. It is required to submit its operational plan and budget, its medium-term investment plan, and any borrowing decision to the Minister of Transport and the Minister of Finance for approval. Pricing of tickets, routing and major personnel decisions are also only taken with approval by the Ministers of Transport and Finance (if the decision has financial repercussions). It is clear that a policy decision has been taken whereby OSE is not allowed to price according to costs. As consequence, the company is structurally loss-making, providing implicit subsidies to its passengers and other customers. The financial relationship between OSE and central government is made even less transparent by the use of both grant transfers (operational and investment grants) from central government as well as guarantees on its borrowing to provide yearly financial support. Both grants and guarantees are reported in the budget, but the provided guarantees have the character of postponed grants as the underlying loan obligations are systematically taken over by government in exchange for an increase in equity capital of the company.² The total annual subsidy of the government to OSE can thus not easily be deduced from the budget or other government documents.

4. The recently adopted legal framework for Public Private Partnerships (PPPs) does not provide adequate protection yet against unwarranted fiscal risks and costs for government. A number of PPP infrastructure projects have been initiated in recent years. The new PPP law is not very explicit about reporting and accounting requirements of line ministries and agencies which supervise PPPs. Also, the share of government in total project risk can still be very substantial as the government can participate up to 49 percent in the “special purpose vehicles” which take on the private sector risk (with public sector risk leaning completely on the public sector). Another area of concern in the new legislation is the lack of clarity about linkage to the government's procurement framework. PPPs should not undermine a competitive bidding for the construction of publicly used-assets. Finally, the governance structure and the tasks of the PPP taskforce, set up to guide the PPP process, should provide assurances on its technical independence to optimize the effective and efficient use of government resources.

5. The Greek government still has equity holdings in a substantial number of economic sectors, but has indicated its intention to withdraw from those companies that are or could operate on a purely commercial basis. The Greek State has major holdings in the utilities and transport sector, but also, amongst others, in banking, defense, gaming and tourism. In telecommunications, banking, and in oil refinery the government has already reduced its holdings substantially. From a public choice perspective, there seems to be little rationale for maintaining equity holdings in these highly competitive sectors. In other sectors where public good aspects and potential market failures are more relevant, as in public transportation, the government is developing plans to make the relationship with public enterprises more transparent, for example by working through public service contracts. If these plans are implemented, it will enable government to divest its shareholder position, and thus avoid being both principle and agent in service delivery. A more limited step has been taken recently with the new Olympic Airlines (the successor of the Olympic Airways). The government has stopped its traditional public enterprise governance based on an establishment act with the Minister of Transport taking most of the decisions. The government now only exerts influence as shareholder (which can still be considerable depending on the stance of the government). Pricing policy is however now, for example, purely based on market conditions. The government has also recently auctioned nonprofitable domestic routes to the domestic airline willing to accept the lowest remuneration, and has—reportedly—not given any preferential treatment to Olympic Airlines. The relationship has thus become more arms-length, but full transparency will be realized only through full privatization in the coming years. Improvements in transparency are also planned in other sectors, such as the state railways, OSE, where separation of the infrastructure and transportation functions is planned. Aim should be to make transparent any explicit or implicit subsidy to the railway system, including appropriate accounting for the instrument of loan guarantees.³

6. The management of state equity holdings is clearly defined with responsibilities being shared between a sectoral ministry and the MEF, or managed solely by the MEF. Companies scheduled for privatization are—in most cases—transferred with respect to management and ownership to the privatization agency DEKA. The direct supervision of individual companies is carried out by their management boards, which tend to have representation from various segments of society, including the unions, and also usually include substantial sectoral expertise. The selection procedure of management board members could, however, be determined with a greater degree of transparency on the basis of clear guidelines regarding required competences, and less on the discretion of individual ministers. Reporting by the government on the management of equity holdings is very summary in nature. The budget document contains an overview of the equity holdings of the state-owned enterprises and those transferred to DEKA. Little insight is provided to Parliament or the public on the budgets of public enterprises, nor on the government's policy intentions and interventions in the coming fiscal year, even of those companies receiving government grants. Final accounts, including balance sheets, are published in the State Gazette, but not presented to Parliament in a consolidated manner with supporting descriptive analysis. A positive development is that the government is planning to impose the International Financial Reporting Standards (IFRS) on public enterprise financial accounting, which will improve comparability with the private sector. Government policies and interventions towards public enterprise are at most alluded to in the budget memorandum. Given the financial involvement of, and fiscal risk for, government arising from public enterprises, a yearly report on the policies and interventions in this sector, with financial details, should be included in the budget documentation.

Government relations with nonfinancial public corporations and the private sector

7. Public nonfinancial corporations are involved in providing some QFAs in a number of sectors, but the extent of nonmarket activities and prices has decreased. Quasi-fiscal activities are, for example, still present in the urban transport sector with regard to price setting, investment and operational activity, and similar in nature to those described for the state railways. Public enterprises in the energy, telecommunications, defense, banking, and real estate sectors, as well as the postal services, are also to some extent still engaged in pricing or corporate activity in support of government policies. Conversely, loss making public enterprise is, especially in the transport sphere, still actively supported through the budget. However, partly under influence of EU policies and regulation, partly through a domestic change of policy, there has been an increasing effort over the past 15 years to bring public enterprises at a more arms-length relation to the state and to have them operate on commercial terms. Both the present and past governments have embarked on full and/or partial privatizations of those public corporations most connected with competitive markets. A somewhat rough indicator of quasi-fiscal activity is presented in Table A1, namely the amount of government subsidies to nonfinancial public enterprise over the past 15 years. Clearly the amount of subsidies as percentage of GDP has declined over that period.

Table A1.

Recurrent Grants and Subsidies from the State Budget Aimed at Public Enterprise Activities¹

¹Data supplied by the Ministry of Economics and Finance; Capital grants and loan guarantees not included.

Table A1.

Recurrent Grants and Subsidies from the State Budget Aimed at Public Enterprise Activities¹

Year	1990	1995	2000	2004
In million Euro	285	358	303	210
As percent of GDP	0.6	0.5	0.2	0.1

¹Data supplied by the Ministry of Economics and Finance; Capital grants and loan guarantees not included.

View Table

Table A1.

Recurrent Grants and Subsidies from the State Budget Aimed at Public Enterprise Activities¹

Year	1990	1995	2000	2004
In million Euro	285	358	303	210
As percent of GDP	0.6	0.5	0.2	0.1

¹Data supplied by the Ministry of Economics and Finance; Capital grants and loan guarantees not included.

8. Arrangements regulating profit transfers from state enterprises to the budget are not clearly specified. As indicated, policies and interventions with regard to public enterprises could be more transparent. In the case of a traditional public enterprise established through own legislation the sectoral minister will also have an important voice in the decision. In practice the profit transfer from the public enterprise sector has been rather minimal reflecting the low profitability of the sector in the past, and the present focus on strengthening public enterprises to prepare them for future privatization.

9. The legal framework for privatization is not very detailed on process and procedures, leaving leeway for discretionary decision-making; privatization processes have been fraught with political considerations and union resistance. The privatization policies of government are periodically discussed in budget documents and in Parliament. The institutional framework for privatization is formed by the law establishing the Privatization Agency, DEKA. The law stipulates elements of the transfer of state-owned enterprise to DEKA in preparation for their full, partial, or phased sell-off to the market. In that process DEKA can use funds obtained from previous privatizations to clear debts and bolster equity of the companies to be privatized. In the past not all privatization processes have been channeled and managed by DEKA, leading to uncertainty over responsibility, process, and procedures. For example, DEKA is governed by a managing board appointed by the MEF and also has representations from sectoral ministries, the banking sector, and DEKA reports on its activities through a yearly report to the Minister of Economy and Finance. This report is discussed in Cabinet but not transmitted to Parliament. The process of privatization has often encountered strong societal and especially union opposition, partly caused by the more generous worker benefits in public enterprises than in the private sector, and partly by the arrears of public enterprises towards their respective worker's pension funds.

10. Privatization revenues have not been transparently transferred to the budget but have been retained in a special privatization account and subsequently spent outside the normal budgetary process. In general revenues, although again with a number of exceptions, are not reimbursed to the budget, but left at the disposal of DEKA on a special privatization account at the Bank of Greece (BOG) (which is part of the overall account of the government of Greece at the BOG).⁴ Utilization of these funds takes place without due approval of Parliament. The government has argued that transactions on the privatization account are financing transactions transforming one asset into another. However, it appears that overhead expenditures of privatization are also partially covered by this account. Even if only used for financing transactions, the impact of these transactions should be presented on the balance sheet of central government. In the past there has also been a discussion with Eurostat whether DEKA could be considered a body external to central government. It has in recent years been agreed that DEKA is an integral part of central government, even if it is set up as a public corporation, as it clearly does not operate in a market environment and is fully involved in the implementation of government policy.

11. Laws and processes governing government regulation of the nonfinancial private sector have been made more transparent under influence of EU directives, but issues remain regarding the lack of clarity of the legal framework and of its application by the administration. Laws and regulations governing private sector activity have been streamlined under the influence of EU directives. Company law, tax legislation, labor market regulation, sectoral regulation, procurement law; all broadly conform to harmonized EU standards. However, the business community still views that certain areas of legislation, for example laws regulating the establishment of new companies, are marred by excessive detail, numerous exceptions, seeming contradictions and varying legal interpretations by central and local government administrations. Another difficulty for businesses submitting to Greek regulation is the tendency to regulate policy areas in a piecemeal fashion, by a continuous flow of Presidential and Ministerial decrees and decisions, rather than by a comprehensive update of a central piece of legislation. The business community has indicated that Greece has a regulatory environment which is relatively more demanding than in most other EU countries.

Government relations with the central bank and public financial sector

12. The BOG is operationally fully independent of government, and it plays no fiscal role. Since Greece entered the third phase of the European Monetary Union (EMU) in 1999, the BOG has been part of European System of Central Banks (ECB). Greece no longer has its own independent monetary policy. The ECB has ample safeguards for any independent determination of monetary policy. The government of Greece holds only a small part of the shares of the BOG, but is entitled to the largest part of the profits given the central bank role granted by government. Profit remittances are determined by transparent rules spelled out in Article 71 of the Statute of the Bank of Greece. The article provides both adequate safeguards for maintaining the bank's capital and reserves and ensuring, when possible, profit remittances towards the shareholders and government. The BOG provides numerous banking services to government and other parts of the public sector, for example BOG provides the MEF services as cashier of government, in payment processing, cash management, and account holding. The BOG is remunerated for these services, and also for the services it provides to social security funds—for which it invests some 70 percent of their reserves in government bonds—and public enterprise. The BOG, however, does not provide credit in any form to government or any public institution or corporation since 1994 when Greece entered the second phase of EMU. Article 45 of the Bank's Statute states that the BOG remunerates the Greek government on accounts held at the bank at an interest rate “reflecting market terms and conditions.”

13. Public financial corporations do not provide preferential loans to government but their stance towards public enterprise still has some limited nonmarket characteristics. The government is full shareholder of only two banks, the Postal Savings Bank and the Agricultural Development Bank. Through full, partial and indirect shareholdings through pension and social security funds, however, it still maintains full or partial control over some eighty percent of the banking sector (on an asset basis), despite substantial privatizations in recent years. The government shareholdings in the largest three banks has decreased substantially over the last 15 years, but through equity holdings of the social security funds the influence of the government is potentially still substantial.⁵ The Postal Savings Bank and the Agricultural Development Bank have special legislation governing their activities. Both of these banks have to some extent business practices which are supportive of their client-base in excess of commercial practice (for example by respectively maintaining small service locations, and by providing relatively easy credit access to farmers with credit instruments of longer than normal maturity). In general, the fully and partially-owned banks have in the past had an intensive and supportive credit and equity relationship with the public enterprise sector. The government has recently indicated that state-owned banks are to fully divest their equity holdings in public enterprises. The medium-term strategy of the government towards financial public enterprise is to continue the process of divesting its holding in the banking sector. The private sector has in the past complained about preferential treatment in credit provision by state-owned, or state influenced, banks towards public enterprises. No firm data is available on the scope of such activity. Further privatization of public financial enterprises will ensure that such indirect channels of quasi-fiscal support will be closed.

Fiscal management relations among different levels of government

14. Public administration in Greece has four main levels. The so-called first level of local government units are the municipalities and communes (villages)⁶ and the second level are the prefectures, geographically covering several municipalities and villages. These two levels of local government are—based on the Constitution—democratic and financially autonomous within their jurisdiction, implying that they approve their own budget through their legislative organs. There is no implied hierarchy between the two levels. There are 1,031 municipalities and 54 prefectures.⁷ Both levels of local government are responsible for different sets of functions and are administratively independent of each other. The next level of government is the region level,⁸ which geographically is made up of a number of prefectures, but is administratively separated from them. Regions function as deconcentrated units of the central government. Each region is headed by a secretary general, who is appointed by the central government, and whose budget is approved by Parliament. The role of the regions towards local government is one of supervision in the legal sense of controlling the legality of local government actions, for example whether they conform to the budget passed by these levels of government and financial regulations in place. The regional administration has no supervisory role on the direction or purpose of local government expenditure.

15. The expenditure responsibilities of different levels of government are defined in law, but leave the possibility of overlapping government activities. The main legal texts defining the jurisdiction of municipalities are the Constitution and the Municipality and Community Code, which encompasses a series of laws and presidential decrees. For prefectures the main legal provisions are contained in the Law 2218/94 on Organizations of Local Self-Administration of the Second Level and its subsequent amendments. In practice municipalities deal with issues of town planning, public works, municipal police, traffic, health inspection and sanitation, school maintenance, kinder gardens, nursing homes, community facilities, licensing of companies, and the management of municipal property and infrastructure. Most of the activities in these areas are regulated or delegated by central government. Importantly, a constitutional amendment specifies that it is not permitted for central government to delegate any responsibility to municipalities without adequate provision of resources. The expenditure assignments of municipalities do not exclude central government involvement in certain policy areas as central government can always declare an issue of national importance. On the other hand the Constitution specifies that issues should be dealt with at the lowest level of government competent to deal with it, and furthermore that specified core tasks of the municipality can never be taken away by central government. It would seem that a more enumerative delineation of responsibilities between municipalities and central government would be more transparent. The responsibilities of prefectures has been severely limited at the time that they were transformed to a democratic layer of government in 1994.⁹ Major responsibilities were shifted to the regions, which, as indicated, are the deconcentrated units of central government. The remaining responsibilities seem to a certain extent to overlap both with those of municipal and of regional governments.

16. The financial autonomy of local government—while guaranteed by the Constitution—is in practice rather limited. Local governments, with exception of the largest municipalities, receive the largest part, roughly 57 percent of their revenues, from the central government. Some 30 percent of that amount is received as earmarked grants, the remainder as a general purpose grant, which is funded by tax sharing arrangement with central government covering a number of taxes.¹⁰ Own revenues of municipalities, made up some 38 percent of the resources in 2004, mostly from property fees and charges, and loans comprised not more than 6 percent. Prefectures are dependent for almost 96 percent of their revenues on government transfers.¹¹ The remainder was almost totally from own revenues in the form of various fees and charges, since prefectures have very limited borrowing. Municipalities and prefectures are forbidden to institute their own taxes, while their fees and charges can only be varied between certain legal boundaries and must be used for the specific purpose addressed by the fee or charge. Moreover, as indicated, government transfers are largely spent on earmarked, or on regulated, expenditure. This implies that the de-facto autonomy of municipalities is severely restricted. In many EU countries the financial and tax autonomy of local government is relatively larger, for example because the property tax and the property transfer tax are full local government taxes.

17. The transfer of resources to local government is defined by a fairly transparent distribution formula but exact amounts are only communicated during the fiscal year. The general purpose grants for municipalities and prefectures is distributed predominantly on the basis of objective criteria defined in law, which include population, accessibility by road, level of tax autonomy, economic growth and unemployment levels, and climatic conditions. These criteria are usually modified on a yearly basis, but only to a limited extent, by proposals and agreement with the respective local government associations.¹² In the distribution formula the most dominant factor is the size of population. The other criteria are factors reflecting need and tax capacity. As such, population is usually the most equitable factor in providing resource equalization, however, there always remain issues of intra-municipal equity in such formula. For municipalities in general it is important that the formula is recalibrated from time to time, which is the case in Greece. One could argue that the present annual recalibration provides too little stability to municipal finances, and that recalibration should be less frequent. A more important drawback of the present system is that the exact transfers to individual municipalities and prefectures is only made know on April 1^st of the current budget year, resulting in a great deal of uncertainty in budget formulation. For more dependable and transparent municipal and prefectural budget preparation the amounts of transfers should be indicated at least a month before finalization of the municipal and prefectural budget. If this is not possible due to uncertainty of the state budget, indicative transfer amounts need to be communicated by the Ministry of Interior.

18. Fiscal decentralization has not progressed far in Greece over the last 15 years, with the size of local government remaining very small relative to other EU countries and the influence of central government on local government activities remaining pervasive. Local government expenditure totaled only 2.9 percent of GDP in 2004. Compared to other EU countries this share in general government expenditure is very low. By restraining local government, capacities for the effective provision of local government services will remain low, as will the capacities for good financial management. Line ministries, even when represented by deconcentrated services, may be slow to respond effectively to local opportunities and challenges. By pervasive regulation of local activities central government supports an attitude of dependence on central government. In financial relations this, according to various stakeholders, leads to a steady stream of in-year supplementary budget requests by local governments, and of politically pressured bail-outs in cases of financial mismanagement.

19. Local government is allowed to borrow without being guided by objective criteria; present indebtedness of local government nevertheless seems low and balanced by substantial cash holdings. There are two main restrictions on local government borrowing. First, for every loan approval is required from the municipal or prefectural council and for loans above 3 million euros a council majority of two-thirds must provide this approval, which is reportedly difficult in Greece's political context. Second, each loan requires a report on the repayment capacity of the municipality or prefecture, which must be approved by the regional administration on behalf of the Minister of the Interior. It is unclear whether local government repayment capacity is evaluated in a systematic way. In any case, there are no restrictions on the modalities of borrowing instruments, and, for example, no maximum debt-revenue or debt-service to revenue limits, as in other EU countries.

The legal and administrative framework for budget management

20. The legal framework for management of public funds is clear on the major processes of budget management. The Greek Constitution, organic budget law, and affiliated legislation incorporate important principles of public finance: (1) taxes can only be imposed by law; (2) expenditure can only be undertaken after approval of the budget in Parliament; (3) expenditure and revenue are presented jointly for all of central government; (4) government financial data is presented in some detail, according to an agreed classification, on a gross basis, in an ex-ante form in an annual budget and ex post in final accounts; (5) management and coordination of the budget process is assigned to the minister of finance; (6) responsibilities of line ministries and their authorizing officers are specified; (7) clear rules exist on the issuance and reporting of government guarantees; (8) contingency provisions prescribe clear and stringent conditions for the use of such funds; (9) ex-ante and ex post audit procedures to control expenditures are defined in some detail; (10) key elements of a yearly budget cycle are identified and prescribed; (11) expenditures are balanced by revenues and financing.

21. The existing budget management framework is not always applied comprehensively. Modern principles of budget management, including strengthened requirements for accountability and transparency, could be included in the budget law. These positive and crucial aspects of the organic budget law described above are not consistently applied over all expenditure regulated by government, i.e., expenditure is, next to the budget, channeled through off-budgetary, extrabudgetary, and arms-length public entities. An ordinary and an investment budget are prepared separately from each other. By using these varying channels and presentations, there is no overall consideration of government expenditure. Another important legal issue is the great freedom of the executive in making changes in budget appropriations during the year.¹³ The Minister of Finance is only required to submit a supplementary budget when the expenditure and revenue in the budget differ “significantly” from the budget estimates (see Article 8 of the Organic Budget Law). Such unspecific requirements for supplementaries is not transparent and undermines the authority of Parliament. In practice the MEF almost never submits supplementary budgets as it has agreed internally to do this only if the budget totals differ with more than 5 percent form the original budget estimates. There are other significant shortcomings of this organic budget law: the lack of medium-term focus; a weak link with, and poor costing of government policy, caused by the input basis of allocations; no use of hard budget ceilings in budget preparation; insufficient provision of review and prioritization of expenditure; limited autonomy and managerial flexibility of line ministries and agencies in the budget process; and an overly complex auditing process. These weaknesses are discussed in subsequent sections. Other areas where budget laws in other EU countries have progressed in recent years is in the requirement to present in-year budget execution reports, to report on the effectiveness and efficiency of government activities, and to hold managers accountable for performance. These areas are still underdeveloped in the Greek budget law. The quality and structure of data and descriptive analysis in budget documents also needs further upgrading. Line ministries do not present separate memoranda on their ministries' activities and achievements as part of the budget documentation.

22. Fiscal management of central government is assigned exclusively to the Minister of Economy and Finance, but internally responsibilities are fragmented. Within the MEF, the two components namely, the GAO and the former ministry of national economy remain for all purposes distinct institutional entities, despite the merger of the finance and economic functions into one ministry. The GAO is characterized by a rather fragmented structure with unclear responsibilities for different functions. At the same time, parts of the functions carried out by the GAO are carried out by other institutions. In budget preparation, the GAO prepares the Ordinary Budget, and the National Economy the investment budget. In the area of debt management, Greece has developed a modern and well-respected Public Debt Management Agency (PDMA) which has considerably improved maturity and risk management of the Greek debt portfolio. While internal reporting systems have been developed by the PDMA, the overall accounting and reporting functions for debt management towards EU, international organizations and Parliament have been retained by the GAO, as well as some of the responsibilities for debt issuance.¹⁴ The debt managed separately by the GAO has been one source of the misreporting confronted in the recent Eurostat data revision. There is an urgent need for an overall institutional review of the MEF that would attempt a consolidation and reorganization of basic functions with the aim of strengthening fiscal and treasury management and removing any overlaps.

23. The organic budget law does not prescribe presentation and analysis of fiscal sustainability issues in the budget. Greece has taken the first steps towards including some medium-term focus in budget preparation, by preparing a macro fiscal outlook which forecast fiscal developments at a very aggregated level. These fiscal projections are not corroborated by preparation of medium term bottom-up budget estimates, leaving large uncertainties on the accuracy of the projections. Project data is subsequently not subjected to sustainability analysis with respect to debt stock developments, nor are any scenarios developed to assess risks with regard to sustainability.

24. Greece's pay-as-you-go social security sector is fragmented, and in part heavily dependent on government for bridging financial deficits. Greece has 149 social security and pension funds that are regulated by a complex system of laws and regulations that has evolved since the emergence of the present system in 1992. In addition, each social security fund has individual by-laws and statutes. The system is funded by contributions of employees, employers, and the state and provides benefits at levels regulated by government. Social security funds are largely organized on the basis of their beneficiaries' employment group. For example, there are social security funds for farmers, lawyers, merchant marine personnel, bank personnel, etc. Many social security funds provide multiple benefits including health care, disability insurance, and pensions. The government has been trying to integrate all private sector employees in the largest social security fund, IKA, which already encompasses a number of employee groups. There are obvious economies of scale to be reaped from merging operational entities which largely have the same business processes and are able to automate much of their activities. This will also make their operations more transparent. Social security funds are managed by a management board of which the chairman and members are selected or approved, respectively, by the Minister of Labor and Social Affairs.

25. In addition to the social security and pension funds there are a number other EBFs, some of which appear to be engaged in normal government activities. The 11 most important off-budget expenditure funds could easily be included in the budget of respective line ministries, not only included for information in the budget documentation as is presently the case. The latter is of course an improvement over previous practice of not informing Parliament at all. Inclusion in the budget would also seem possible for a number of government agencies, such as the Employment Agency which provides unemployment benefits and other services to the unemployed. While an arms-length relationship can be useful in increasing effectiveness and efficiency of certain types of government service provision, this is not a valid argument for placing the budget of agencies off-budget.

26. Central government is regularly called in to provide financial support to the social security sector, which is plagued by poorly prepared and enforced budgets, arrears of contributors, and a highly inefficient health sector as the main destination of funds. Social security funds must present a balanced or surplus on their budget that they submit to the MLSA for approval. They can use available reserves for covering a deficit if necessary. Even though a pay-as-you go system, the sector has an approximate investment reserve of 20 billion euros, which is managed for some 70 percent by the BOGG in a bond mutual fund. Nevertheless, individual social security funds do run deficits and then seek grant transfers from central government since the alternatives of increase in premiums or decrease in benefits for individual employee groups is politically unacceptable. The financial situation of certain funds has deteriorated due to payments arrears of employers, specifically state-owned and loss-making employers. In addition, a poorly managed and inefficient health sector has driven up health costs considerably. Finally, the mission had the impression that budget preparation is done on the basis of expected transfers from the state, not the other way around so that transfers are determined on the best calculation of entitlements minus contributions. On the other hand there no sense of urgency in the sector to improve collection of contributions, or discuss health care costs with the hospital sector. Most social security funds seem content to request support from central government, when needed. The fragmentation of the sector has made it rather weak in the relationship with both employers, government and health care providers.

27. The monitoring, supervision, reporting and analysis of the social security system could be greatly enhanced. While the MLSA exerts very detailed control over most aspects of the funds' activities, this is not the case with monitoring and supervision on budget implementation. The social security funds provide budgets, quarterly reports and annual reports to both the MLSA and the MEF (see Box 2). The budgets are approved by the MSLA, and also by the MEF if a grant transfer is requested. The quarterly reports, and final accounts, which are produced often with considerable delay, or even not at all, are sent to MLSA and MEF for information, but seem only to be used for statistical purposes. Timely in-year intervention or investigation as to expenditure overruns or lack of revenues does not take place. Neither is the Cabinet or Parliament informed on the budget execution of the sector. The MLSA does produce an annual Social Budget which provides summary information on the budgets of the funds in the ongoing year and on past years with some delay (due to late provision of data). The usefulness of this report can be called into question as it not published at the time of the state budget when the grants to the funds are decided.

28. An important shortcoming in the reporting of pension funds is that, while financial assets and liabilities are presented, future year pension obligations towards contributors are not monetized. This implies that the overall solvency of pension funds can not be easily ascertained. The recently established National Actuarial Authority (NAA) could play an important role in developing standardized methodology for pension fund accounting. The authority has been set up—according to its establishment act—to supervise, report on, and investigate operations of pension funds based on a new law on pension system reform enacted in 2002. The activities of the NAA still seem largely advisory, and less than its formal mandate seems to imply. At present, overall supervisions and control of pension funds still rests with the MLSA. This role should be shifted to an adequately resourced NAA in the coming years.

The legal and administrative framework for tax policy and administration

29. The legislative basis for taxation is clear, but made untransparent by overly complex administrative procedures and a multitude of exemptions, stamp duties and “third party taxes.” According to article 78 in the Constitution, taxes cannot be levied without a statute enacted by Parliament, specifying the tax base and the tax rate. Nonetheless, tax reform, with a broadening of tax basis and a simplification of the tax code, remains an important issue. Frequent changes in tax legislation reduce the openness and predictability of the tax system. There is reportedly uncertainty in areas of the income tax law, in particular in the interpretation of what business expenses are deductible.¹⁵ While the law formally provides for self-assessment of income taxes and VAT, in practice the system is not functioning on a full self-assessment model. The Code of Books and Records specifies in three volumes what legal requirements must be followed in keeping, recording and formally authorizing all business books and documents. This is certainly comprehensive, but is so voluminous and detailed that as a consequence it becomes nontransparent.

30. The tax system in Greece is characterized by a large number of tax exemptions, such as reduced VAT for certain goods such as books, newspapers, food and medicine, and a reduction on the tax on interest on treasury bills and bonds. This problem is augmented by a multitude of stamp duties, and nontransparent “third-party taxes”¹⁶ arising from the compulsory contributions to numerous pension and social security funds on employees. The Greek authorities have introduced several reforms since 2001 to simplify the tax system, inspired by the report of a Tax Reform Commission. There is open acknowledgement that there is still room for reducing further the complexity of the tax system by abolishing many more stamp duties, ending preferential treatment of some products and services, eliminating many of the exemptions to corporate taxation, and making explicit the extent of “third-party taxes.”

31. Rights and obligations of taxpayers and the tax authorities (for example, to obtain third party information, take enforcement actions, and other regulatory measures) are specified in the law. Administration of the tax law has been, however, both ineffective for the government and burdensome for the taxpayers, with a great deal of focus on the satisfaction of formal requirements which can be extremely detailed and extensive. In addition, the process of audit is frequently conducted with bargaining¹⁷ between taxpayers and tax officials over the level of assessment, a situation to which the uncertainty in some of the income tax provisions contributes.

32. The appeal procedures and related legal rights of taxpayers are clearly defined, and mechanisms for enforcing these exist. Decisions by the tax administration can be appealed by the taxpayer, if the appeal is recorded in the local office within 60 days of formal notification of the tax discrepancy or penalty by that office. Taxpayers may, but are not required to, take a first administrative appeal to an “Article 70 Committee,” for most tax discrepancies.¹⁸ Although not a required step, almost all appeals¹⁹ do begin at this level, and the vast majority are settled there (frequently through compromise or bargain). Most administrative appeals of this type are settled quickly, within a few months at most. A taxpayer may, after decision by the Article 70 Committee (or, as noted, instead), also appeal to the administrative courts, a process which can take from two to five years to complete and requires a lawyer. The key role played in the administrative appeals process by the Directors of the local field offices, responsible for assessing the tax discrepancy in each case, results in the appearance of lack of independence in the appeals process, and should be eliminated.

Public servants' code of behaviour and anti-corruption activity

33. Public servants are subjected to a well-defined code of behaviour, although adherence to the code remains uncertain. Reducing corruption in the public administration is a priority of the government. For this purpose a number of inspection bodies have been established, such as the Public Administration's Inspectors and Audit unit at the Ministry of Interior, as well as several inspection divisions in various ministries, the Police and the Coast Guard. The regulation of procedures for investigating financial crime comes under the jurisdiction of a special unit in the MEF—the Special Control Directorate. The responsibility of prosecuting bribery cases lies with the Ministry of Justice. However, diligent enforcement of anti-corruption laws remains an issue (see paragraph thirty one on tax administration). Since 1999 the conduct of civil servants in Greece has been regulated by a Code of Civil Servants (2683/1999). The code regulates appointments, obligations for, and restrictions on, behaviour and conduct, employment conditions and remuneration, and disciplinary measures.

The budget preparation process: clarity and consistency of process and presentation

34. While Greek budget preparation procedures are clear, they are not in line with international best practices. The annual budget process is to a large extent open, and for the most is in line with the structure in other EU-countries. The budget preparation process involves the formulation of an aggregated fiscal framework, although this does not fully translate into the budget process. An important drawback in the Greek system is that the budget process is fragmented into a number of different budgets—the ordinary budget, the investment budget, and the budgets of a large number of extrabudgetary funds and entities. This fragmentation of fiscal relations obscures a consolidated picture of public finances, which could lead to sub-optimal decision making and insufficient fiscal discipline, as well as the inability to obtain information necessary to evaluate the performance of the government sector as a whole.

Box 3.

The Budget Preparation Process

¹If the budget is not approved by Parliament before the beginning of the budget year, the budget of the previous year is extended for four months (Constitution, Article 79, paragraph 5 and 2362/95, Article 9, paragraph 2).

The fiscal year begins on January 1 and ends on December 31 (The Organic Budget Law, 2362/95, Article 4)
Due dates	Activities	Legal Basis
January	Macroeconomic forecasts for coming budget year (t) and the following two years (t+1, t+2) is prepared by MAD of MEF.
Spring	Main fiscal parameters, based on the SGP requirements, for year t together with projections for t+1 and t+2 are established.
May	Budget circular, containing instructions on the formulation of spending proposals, distributed to ministries and regions.
July	Spending proposals sent to GAO, and proposals regarding investments sent to MEF.	2362/95, Article 6, Budget Circular
July	Updated macroeconomic forecasts by MAD.
July–September	Negotiations between GAO/MEF and ministries and regions.
September	GAO prepares draft budget.
Mid-September	The Minister of Finance presents draft budget to Prime Minister followed by discussions in the Cabinet. Government decision on the draft budget.
First Monday of October	The draft budget submitted for discussion to the Financial Committee of the Parliament.	Constitution, Article 79
November 20 (40 days before the beginning of the fiscal year)	Minister of Finance presents the budget proposal to Parliament.	Constitution, Article 79, (compare 2362/95, Article 8,)
End of December	The budget is approved by Parliament.1	Constitution, Article 79

¹If the budget is not approved by Parliament before the beginning of the budget year, the budget of the previous year is extended for four months (Constitution, Article 79, paragraph 5 and 2362/95, Article 9, paragraph 2).

View Table

The fiscal year begins on January 1 and ends on December 31 (The Organic Budget Law, 2362/95, Article 4)
Due dates	Activities	Legal Basis
January	Macroeconomic forecasts for coming budget year (t) and the following two years (t+1, t+2) is prepared by MAD of MEF.
Spring	Main fiscal parameters, based on the SGP requirements, for year t together with projections for t+1 and t+2 are established.
May	Budget circular, containing instructions on the formulation of spending proposals, distributed to ministries and regions.
July	Spending proposals sent to GAO, and proposals regarding investments sent to MEF.	2362/95, Article 6, Budget Circular
July	Updated macroeconomic forecasts by MAD.
July–September	Negotiations between GAO/MEF and ministries and regions.
September	GAO prepares draft budget.
Mid-September	The Minister of Finance presents draft budget to Prime Minister followed by discussions in the Cabinet. Government decision on the draft budget.
First Monday of October	The draft budget submitted for discussion to the Financial Committee of the Parliament.	Constitution, Article 79
November 20 (40 days before the beginning of the fiscal year)	Minister of Finance presents the budget proposal to Parliament.	Constitution, Article 79, (compare 2362/95, Article 8,)
End of December	The budget is approved by Parliament.1	Constitution, Article 79

¹If the budget is not approved by Parliament before the beginning of the budget year, the budget of the previous year is extended for four months (Constitution, Article 79, paragraph 5 and 2362/95, Article 9, paragraph 2).

35. The budget preparation process starts in the early months of the year with a macroeconomic forecast prepared by the Macroeconomic Analysis Department (MAD) of the MEF. This forecast is published in the “Current Economic Developments of the Greek Economy.” The projections are then translated into a fiscal framework based on the criteria outlined in the Stability and Growth Pact (SGP) of the European Union.²⁰ The fiscal framework contains an assessment of revenue and targeted levels for central government expenditure and deficit for the upcoming budget year, plus the two following fiscal years. Overall expenditure is tentatively broken down into allocations for each ministry and region for the ordinary budget and for the investment budget. There are, however, no formal procedures in which restrictions in the budget are fixed at this stage. In May budget circulars are distributed, requesting the preparation of spending proposals for the ministries and regions, both for the ordinary budget and the investment budget. The circulars contain a general comment on the government's fiscal policy, directions on the formal procedures for compiling proposals and deadlines for the submission to the GAO and the MEF. The preparation of spending proposals is to a large extent a bottom-up, incremental exercise, where the previous year's appropriation is used as the basis for calculating future expenditure requirements. Additionally, a significant part of the overall expenditure is decided by centrally set criteria, for example, personnel expenditure, grants to social funds and expenditure for tax-sharing with local governments. Ministries and regions also use this opportunity to propose discretionary spending proposals requiring financing. Expenditure for both existing programs and reforms is calculated and requested in a three-year perspective. According to the deadlines set in the budget circulars, the spending proposals for the ordinary budget are sent to the GAO for scrutiny and the proposals for the investment budget to the MEF; this usually takes place in early July. Following this, the GAO starts preparing the budget proposal with the aim of containing overall expenditure within the limits of the fiscal framework. As a rule, this requires significant reduction of the proposed expenditure levels received from ministries and regions. At this stage, an update of the macroeconomic picture is made and the GAO, therefore, has a better picture of the scope for expenditure. In the preparation of the budget, negotiations with the ministries and regions on the ordinary budget and the investment budget are undertaken separately. In the middle of September the Minister of Finance presents the Prime Minister with a budget proposal. After discussion in the Cabinet the government decides on this proposal, and a draft budget is sent to the finance committee in the Parliament no later than the first Monday in October. By providing the Parliament with a draft budget the government can receive preliminary comments on its budget. The final budget proposal is presented to the Parliament, no later than 40 days before the start of the new fiscal year.

The macroeconomic framework and policy basis for the budget

36. The main focus of fiscal policy in Greece has been to reduce the general government's deficit and debt positions, but these aims have proven difficult to fully translate into central government budget preparation and execution decisions. Following fiscal inventory revision of public finance statistics in Greece, with general government deficit figures of more than 3 percent for every year since 1997, there are obvious questions to be raised over Greece's ability to enforce a sustainable fiscal policy. Apart from the obstacles posed by the deficiencies in the system for monitoring and reporting financial statistics, the organizational structure of the public sector and the institutional arrangements in the budget formulation process further obscure fiscal policy formulation and implementation. The fiscal policy objectives formulated in the early stages of the budget formulation process do not fully translate into the government's budget proposal. The lack of explicit budget policy targets consistent with the overall fiscal policy for the general government sector largely leaves fiscal policy at the discretion of the GAO. Furthermore, the implicit fiscal target for the central government sector is not set for the budget outcome, and does not restrict expenditure to a full extent in the execution phase.

37. The macroeconomic assumptions used for budget preparation are openly presented in the budget memorandum, but it is questionable as to the extent these forecasts are used consistently in the budget process. The macroeconomic foundation for the budget is provided by the MAD in its semi-annual report “Current Economic Developments of the Greek Economy.” The report informs the budget formulation process by providing assumptions regarding the underlying parameters affecting revenues and expenditures, serving, therefore, as an anchor for the formulation of fiscal policy objectives. Since there are neither any explicit and formalized fiscal targets, nor any budget policy targets in quantitative terms, the actual impact of the macroeconomic forecasts on the fiscal policy should not be overestimated. Even though they are publicly available, it is questionable to what extent the macroeconomic forecasts made by MAD are used when estimating expenditure in the proposals compiled in the ministries and regions. There is little indication that a consistent macroeconomic framework is used when preparing the budgets for extrabudgetary funds. In preparing macroeconomic forecasts MAD uses input from other institutions, such as GAO and the Bank of Greece. The forecasting models are not publicly disclosed. There is no public institution providing forecasts to be used in comparison to the ones produced by MAD.

Medium-term planning and analysis of fiscal risks

38. Despite the budget containing aggregate forward estimates, the budget process focuses on the current fiscal year. Data on deficit and debt levels for the general government, and deficit levels for central government, are presented for the upcoming budget year and for the two following years. Nonetheless, the budget preparation process is, to a large extent, focused on the budget year, with little attention given to the medium term. Consequently, the government's ability to fully control fiscal developments is restricted. Since the full impact of new initiatives often only becomes apparent after a number of years, there is little consideration of fiscal sustainability issues.

39. Deficit and debt ratios of the general government sector are used, but not fully institutionalized in the budget process. The two fiscal anchors that are used in the Greek budget process are the requirements of the SGP. The guiding principles are, consequently, a deficit target for the general government sector and a target for the debt ratio. The manner in which fiscal targets are formulated and used in Greece does not fully promote fiscal discipline and sustainability. The deficit target for the general government sector that is used in Greece is not suitable as an operational fiscal target for the central government. This target needs to be translated into a parameter that the central government can influence directly, either a balance target or an expenditure target for the central government sector. Currently this is implicitly carried out in Greece, although such targets are not presented to the Parliament in the budget. Since the fiscal target in Greece is not formalized and set in terms of the outcome, the government is not forced to make necessary priorities if the expenditure or revenue developments are unfavourable during the budget year. Considering the past years' budget balances in Greece, this appears to be especially important. The abundant use of tax expenditure, state guarantees, and to a lesser extent QFAs, to finance government activities diminishes the relevance of fiscal targets.

40. Estimates of new policy initiatives, and ongoing costs of government policies, are distinguished in the budget documents but these could be more detailed. Any discretionary reform policy proposed by a ministry or a region must be specified separately in the spending proposal, including an analysis of the costs for the period beyond the upcoming fiscal year. The extent to which GAO approves financing for these initiatives depends both on the nature of the reform and its contribution to the overall policy of the government, and the available scope for new expenditure. The same procedure is used when preparing the investment budget. In the budget proposal to Parliament, the cost of discretionary measures is only presented at an aggregate level, that diminishes their relevance for fiscal transparency, and certainly any debate on priorities.

41. The sensitivity of budget estimates to changes in economic variables is not assessed and fiscal risks are not fully evaluated and presented in the budget. An effective control over public finances in Greece requires improved procedures for evaluating the development of expenditures in the budget. Since a number of items in the budget are affected by factors that the government only has power to influence indirectly, an analysis of the sensitivity of budget estimates is important. Such sensitivity analysis is needed for both current year expenditure, and for future fiscal years. This need has been recently recognized in the March 2005 SGP report that examined the fiscal impact of less favourable macroeconomic conditions, albeit without discussion of corrective policy measures. In addition, there is a need for better monitoring of the fiscal risks posed by hidden, or contingent, liabilities. Also because public finances in Greece can be substantially affected by institutions outside the central government, or not incorporated into the state budget, there is a need for better information on their financial position. The use of government guarantees for loans is used extensively to finance public sector activities in Greece. The amount of new guarantees is restricted to 3 percent of the ordinary budget expenditure each year. While guarantees are registered and presented to Parliament every year in the budget document, the screening of guarantee proposals is not guided by clear criteria, there is no systematic analysis of risks associated with guarantees, nor information provided on other contingent liabilities. A proper assessment of fiscal risk is difficult without inclusion of contingent liabilities arising from the social security funds as well as by improving the quality of available data on payroll and arrears.

Clarity of control of budget execution

42. The accounting rules and regulations, including internal control, focus mainly on legal and financial compliance. The budget execution process in Greece is regulated by the organic budget law, Law No. 2362 of November 27, 1995, which primarily governs the management of public revenues and expenses and public accounting. In addition, at the beginning of each financial year instructions and guidelines are issued for execution of the budget. The basic procedures for budget execution, including internal controls, are outlined in Box 4.

43. Budget execution procedures continue to be “traditional” with a focus on detailed input compliance and controls. There are cumbersome processes for checking and rechecking of expenditure before payments are made, first by the staff of the Department of Financial Services (DFS) of the line ministry or agency, followed by the staff of the Fiscal Audit Office (FAO), and the Court of Audit (COA), stationed in all ministries, major agencies, and regions. However, such multiple controls are applied only to a small set of ordinary budget expenditure, namely operational and other current expenditures, which constitute about 10–15 percent of the total ordinary budget in 2005. Furthermore, the multiple expenditure controls are principally applied after the obligations have been incurred, and thus focus on limiting cash payments rather than on limiting current liabilities. Commitment control is left to the line ministry, which means that orders could be placed for the purchase of goods and services, for which the funds may not be available. Subsequent checks by the FAO and COA staff before the payment of a claim cannot control for over commitment by a line ministry. The lack of control over commitments is evidenced by the carry over of unpaid obligations from one year to another year.²¹ Also the cash management system is geared toward controlling cash payments for expenditure, and not facilitating efficient implementation of the budget complemented by an adequate system for managing commitments.²² Government payment operations are effected by a main government account, which functions as a quasi-treasury single account (TSA). An overview of the TSA is in Box 5.

44. Coordination between budget execution and financial management is not systematic. The current system of financial management for cash and expenditure planning and assessing borrowing requirements is limited. The financial planning and cash flow projections are primarily used for regulating monthly cash releases. The financial planning process merely guides the flow of payments, but is disconnected from the process of setting quarterly expenditure ceilings and the flow of commitments and obligations. Further, this process is not well integrated with the debt management. The Public Debt Management Agency (PDMA) prepares an annual financing plan based on the financing requirements of the approved budget; this program is revised each quarter, with one or two debt issues a month placed by auctions or syndications by the PDMA. While the borrowing program is front-loaded, so that liquidity is not an issue during the fiscal year, the cash spending by the line ministries is typically squeezed, mainly to slow down the use of budget lines. As a result the MEF maintains a large cash buffer and uses this to offset short-term liquidity movements. There is a need for closer interaction of debt issues and cash management to reduce these costly cash balances and to rely more on debt issues to offset liquidity movements.

45. The internal financial controls and audit processes within ministries are exercised by the FAOs of the MEF stationed in line ministries; this diminishes the accountability of ministries for sound financial management. The functions related to internal control and internal audit in a line ministry are currently performed by the staff of the FAO. The internal audit function²³ in line ministries is still evolving and needs to be developed according to the international standards in this area. The responsibility for all ex-ante checks and controls should be entrusted to the line ministries and other state bodies. This would require phasing out the role of FAOs²⁴ in a well-planned and progressive manner, accompanied by developing internal control and audit functions in line ministries.²⁵

46. Public procurement procedures are comprehensive and consistent with the EU regulations; the procurement performance needs to be reviewed and made public and reported to Parliament. Greece has adopted the EU procurement directives (93–36), and harmonized them by a domestic Law No. 2286. The Ministry of Development (MOD) is responsible for a sizable part of procurement on behalf of central ministries and departments, with the aim to reduce costs through lower priced frame contracts for common items, as well as transparent procurement procedures. Preparations for drawing a procurement program begins in October, and agencies are asked to submit next year's proposals by end January with the program usually finalized by March. Typically most agencies only reach 50 percent of the planned procurement. For completed procurements, the MOD has all the data on the number of participants, final bids, country, and unit price, etc., and this information is provided on their website. Despite overall transparency, there is some discretion in the process, since the overriding criteria for selection of the final bid is not just the least cost but rather if it is the “closest to our interests.” There is no summary report to Parliament summing up procurement program performance as a whole.

47. Civil service employment procedures are comprehensive and well understood, but cumbersome and inefficient for attracting highly skilled personnel. There are detailed legal and institutional mechanisms in place to ensure open recruitment. The Constitution states that civil servants shall be the executors of the will of the State and hold posts so long as these posts exist (Article 103). This has been interpreted as offering lifetime employment to recruits. The Ministry of Interior is entrusted with the task of managing civil service employment. The recruitment procedure is governed by the principles of equal opportunity, meritocracy, objectivity, social solidarity, transparency, and publicity. The Supreme National Commission ensures transparency in the recruitment procedures and conduct examinations for public employment. All public employees are paid on the basis of a standard remuneration system, which varies according to the educational level. The promotional procedures of the employees in the public administration are clearly set out in the Code of Public Employees. The whole process of recruitment seems to be highly centralized and somewhat outdated, and does not provide adequate flexibility to central ministries to recruit their staff with specialized skills and knowledge. For example, the recruitment to the Fiscal Audit Service is done by the Ministry of Interior with the help of a common civil service examination. It is also cumbersome giving rise to complaints on the time taken to fill vacancies.

Clarity of internal control and independence of tax administration

48. Effectiveness of tax collection needs to be further improved through the implementation of a comprehensive internal control system. The tax administration is computerized by the TAXIS system, through with tax collection is registered and monitored. The computerized system is aimed at improving efficiency and reducing the possibility of tax evasion. The newly formed Special Inspections Service (YPEE) supervises and inspects the tax administration, in addition to its main function of dealing with tax evasion and tax crime. However, a comprehensive system for management control, providing the Director General with instruments for verifying the performance of the organization, has yet to be developed.

49. The organizational structure contributes to lack of accountability and uncertainty over outcomes by management. The revenue administration consists of three primary and general directorates of equal status under one secretary general—tax, audit and customs—supplemented in some functional areas by entirely separate secretariats, including the GSIS (for all IT functions), and the YPEE (the specific financial investigations service, formerly, the economic crimes unit), which reports directly to the minister. Lines of authority, even within and between the tax directorate and the directorate for audit, are multiple and overlapping, leading to a lack of management accountability. Coupled with a serious lack of internal information and data, this creates a good deal of autonomy and self-management on the part of local (“regional”) office Directors. A separate division within the tax directorate—the Economic Supervision Unit—does perform internal audit functions, reviewing the behavior of staff in field offices.

Accounting and reporting on budget execution

50. The accounting system is capable of producing accurate in-year reports on central government budget outturn, but does not cover general government. The accounting system of Greece is traditional, based on a standard cash-based approach, meeting basic accounting and reporting requirements. Monthly data on budget execution are available around 20 days after month-end on www.mnec,gr under “Hellenic finance indices: SDDS-IMF” and www.glk-mof-glk.gr under “Budget Implementation.” The data includes the central government revenues and expenditures, including payments for army equipment projects and hospitals' outstanding obligations. The chart of accounts is consistent with the budget classification. However, there is no monthly report on expenditure commitments made by the line ministries against appropriations, or their outstanding bills. Annual accounts, a partial balance sheet,²⁶ along with the audit report on the accounts of previous year, are presented annually to Parliament in October/November.

51. The GAO's accounting and reporting system fully account for all transactions pertaining to the approved budget estimates. However, the central accounting system does not fully capture off-budget activities, nor consolidate the revenue and expenditure data in central government with that of local governments and public entities to generate fiscal data on general government. Data for the general government is compiled by National Statistical Service of Greece (NSSG) with the help of GAO accounting data and survey of all public entities. However, fiscal accounts and reporting during the period 2000–03 gave rise to a number of issues from mis- and under-reporting of various expenditures, revenues and debt transactions, necessitating substantial recent revisions to the fiscal data.²⁷

52. The legislature receives timely in-year reports on budget outturn, and undertakes a mid-year review. As stated earlier, the monthly data on budget execution is available around 20 days after month-end on government websites. This data is the only source of information on the central monthly budget outturn. In addition to the monthly report, a mid-year report²⁸ on budget execution is formally presented to the Parliament to facilitate a mid-year review of the economic and budget performance.

53. The final accounts, audited by the COA, are available within 12 months of the end of the fiscal year. In accordance with the Law No. 2362, the Finance Minister sends the annual Final Accounts and Balance reports to the State Audit Council by the end of September. The Council verifies their accuracy and returns them to the GAO within one month from the date of receipt with its Statement. The final accounts and balance reports, with the Statement by the COA are introduced in the Parliament for ratification no later than the end of November. The last audited annual accounts and balance reports submitted in November 2004 pertained to the financial year 2003. However, the accounts of the local government are not included in this report to the Parliament.

Results-oriented budgeting and reporting

54. The current Greek budget system is primarily input-based and lacks both a program structure and performance orientation. The budget does not include a classification of expenditures by program or activities, except for capital expenditures, which are financed in part by EU transfers. Appropriations are by inputs and they do not contain any statements, even of a generalized nature, of the objectives or the goals of the spending. Without a clear program classification, it is difficult to develop performance measures or evaluate the efficiency and effectiveness of spending. The authorities have expressed their intention to introduce a program classification for expenditures, as well as performance indicators, with a view to enhance efficiency in the allocation of budgetary resources.

The coverage and quality of budget documents

56. The state budget focuses on the central government, eleven off-budget funds are co-published with it, but little information is provided on general government operations. The state budget documents²⁹ cover, on a cash basis, the operations of the central government including the ordinary and investment budgets of central ministries, regions and prefectures, and eleven off-budget funds. The ordinary budget estimates are presented by main administrative units, including specialized agencies, and a four-digit quasi-economic line item classification. The investment budget has its own much less detailed economic classification. The eleven off-budget funds include Funds for Defense and EU Subsidies on Production of Agricultural Products, namely oil, cotton and tobacco. Projected financial flows with the EU are broken down by type, and transfers to public entities are presented by sector of economic activity. The budget documents also include tables with the financing requirements and outstanding debt stock of the State, for central and general government operations. An executive summary of the budget is also made available in the English language at the website www.mof-glk.gr. The coverage and information content of budget documents need to be enhanced. At present, they exclude off-budget spending through a number of extrabudgetary and special purpose accounts. The information on transfers to public entities including hospitals and social insurance funds is only presented by a single budget line. The ordinary and investment budgets are not integrated to give a transparent view of the government's overall spending plans.

57. Defense expenditures are reported in the budget. The authorities advise that defense transactions are budgeted and accounted for in the same way as those of other agencies. The defense budget estimates are quite detailed³⁰ and follow the standard administrative and economic/budget line-item classification followed for compilation of budget estimates of central ministries and agencies. Similarly the Public Investment Budget includes defense expenditure on projects, including the procurement of arms and military equipments. However during the years 2000–03, the defense budget did not fully cover spending on the procurement of military vehicles and equipment, as revealed recently during the fiscal inventory exercise undertaken by the government with the cooperation of Eurostat. During this period a substantial portion of military expenditure was kept outside of the budget and financed from special loans. The authorities indicate that this practice of off-budget spending and nonrecording of military expenditure financed through special defense borrowing has been discontinued starting with the current fiscal year, and the 2005 budget estimates for the Ministry of Defense fully reflect military expenditure, including that procured through special borrowings.

Past and forecast fiscal data in the budget

58. The state budget documents present the main fiscal aggregates for two years prior to the budget year, and two years beyond the budget year. The Budget Introductory Report also contains an analysis of recent economic developments, projections for main macroeconomic aggregates, and major underlying assumptions regarding the economic environment, as well as summary tables showing revenue, expenditures, the balance and financing for actual spending two years prior to the budget, revised outturn for the current year, and estimates for the budget and two succeeding years. However, the detailed budget estimates for central ministries do not provide estimates for the two future years.

Budget treatment of off budget fiscal activity

59. Government guarantees are fully disclosed in budget documents, but other contingent liabilities are not. The budget law clearly regulates the granting by the central government of guarantees for state debt—the total amount of guarantees issued in a year should not exceed 3 percent of ordinary budget expenditure for the relevant budget year. In practice this discipline is undermined since the MEF has little information before enterprises make commitments, and requests for additional financing tend to be accommodated after a “review” that is not subject to stringent nor transparent criteria. Moreover, this 3 percent limit is not applied to guarantees issued for debts to meet unforeseen expenditures such as natural disasters and earthquakes. The budget introductory document contains a summary report providing yearly data for the period 1989–2004 on: (i) guarantees issued; (ii) outstanding guarantees (at the end of each year); (iii) guarantees called; (iv) commission received on guarantees; and (v) net budgetary payments to satisfy guarantees. However, there is no assessment of contingent liabilities, such as indemnities or risks that arise from guarantees, privatization or private/public partnership, and no information is provided in these areas. Furthermore, it is necessary that contingent liabilities should include implicit guarantees of deposits of public sector banks or banks perceived as belonging to the public sector, as well as liabilities arising from pension systems of previously state-owned enterprises.

60. A statement on tax expenditures is included in the budget documents; but their extent and presentation raises concerns. A descriptive account of tax expenditure is presented to Parliament in a supplement to the budget. This report does not, however, include a full quantification of foregone revenue resulting from tax exemptions. The Greek tax system grants almost 1,000 exemptions from various taxes. Such a vast use of tax expenditure reduces the transparency, as a significant part of the government's policy is financed through revenue forgone rather than direct expenditure on the budget. According to the Law No. 2214, Article 59 of 1994, the government is required to present a full account of tax expenditure to Parliament together with the budget proposal every year. In this report tax expenditures are classified according to the type of tax from with exceptions are made, and according to the beneficiaries enjoying the tax reduction. There is no policy categorization, although the purpose of each tax expenditure is presented. In the introduction to the tax expenditure report there is a brief description of the method for estimating foregone revenue. An estimation of the cost is given for less than half of the tax exemptions. Consequently, it is not possible to form a picture of the full financial impact of tax expenditure. The baseline tax used when estimating cost consists of existing tax legislation. There has been virtually no integration of tax expenditure in the budget process, by which both direct expenditure and tax expenditure of a given policy is discussed.

61. No information is provided in budget documents on quasi-fiscal activities. There are a number of quasi-fiscal activities in the central and general government sector, which are not specifically reflected in the budget documents and reported to the public, (see details in paragraph seven). For example, state-owned enterprises in the transport sector provide price subsidy for rail and road transportation in selected areas, and these are not costed and classified as such in the budget estimates.

Publication of data on debt and financial assets

62. Information on gross public debt is published regularly; however the general government debt figures provide only a partial picture of public sector indebtedness. Information on the level and composition of central government debt, including the special debt raised for defense needs is provided in a separate section in the Introductory Budget Report. In addition, a Public Debt Bulletin is published by the Public Debt Division of the GAO³¹ on a quarterly basis. The same figures are provided for the IMF Special Data Dissemination System (SDDS). However, there is no publication of data on borrowings by local governments, social security funds, and public enterprises. Local governments are not required to submit financial data on their outstanding debt. Similarly, there is no systematic monitoring of state enterprise debt. Also debt reports do not provide projections of future debt service requirements.

63. Information on government financial assets is published annually but is incomplete. Records on government financial assets are not being maintained fully and in a consolidated manner. Limited data on financial assets is published yearly in the state financial accounts and the balance sheet, in accordance with the Law No. 2362 of 1995. The balance sheet gives a picture of assets and liabilities of the public treasury as well as the public debt at a given point of time. The Balance Sheet is presented to Parliament and is ratified by its Plenary Session, in the same way as the state accounts and audit report. The Balance Sheet is primarily based on a system of cash basis accounting adjusted with some accrual information.³² However the Balance Sheet does not give a full picture of all financial assets, such as equity investments in public entities; and known liabilities such as unmet obligations at the end of the year. Also the current economic classification followed for budgeting and accounting is not compatible with any of the international classification systems, it is somewhat close to the GFS 1986 classification.

Commitment to timely publication of fiscal data

64. Greece fulfills a number of international commitments to the regular publication of fiscal data. Greece subscribes to the Special Data Dissemination Standards (SDDS) and meets the timetable for providing data on central administration and general government operations. Monthly data is provided on central government revenues and expenditure (see paragraph 50). Greece also adheres to its commitment to provide annual general government fiscal data to the EU. The various laws and decrees provide a timetable for release of budget and accounting data, but there is no formal announcement of an advance release calendar for fiscal data of general government, although such a commitment exists for the central government fiscal data. Although Greece produces data on government debt through quarterly bulletins, the comprehensiveness and the timeliness of the supplied data, could be improved. The websites that provide fiscal data are listed in paragraph 50.

Integrity of data processes

65. The variance between budgeted and actual outturn at the aggregate level is disclosed to the public, although deviations are not explained. Most recently, arising from fundamental fiscal data revisions by Eurostat, some concerns have been raised as to whether budget processes are capable of meeting acceptable data quality standards. The budget estimates of the central government are perhaps the most accurate, containing some large and relatively stable expenditures, the payroll and debt service obligations, with computerized systems to determine their present levels and project future levels. The detailed controls operated by GAO, that releases cash against appropriations only according to its availability, means that it is possible to keep variances between budget estimates and outturns to tolerable levels, as can be seen from Table 1. However, the aggregates overstate the degree of budget realism, and the widest deviations from budget estimates and outturns occurs within detailed budget line items, at the three digit level of the four digit basic classification. With approval from the Budget Department of the GAO continual reallocations are made within the fiscal year to ministerial budgets; however these are not reflected in the published outturn data since it is at the aggregate level. For national security reasons, Greece preferred to keep a large portion of defense expenditures outside the budget, by acquiring military equipment through special arrangements. To address this problem, Greece has recently decided to record these transactions on a cash basis, (see paragraph 57). Another source that undermines the integrity of budget data is the existence of extrabudgetary accounts that were allowed by Law No. 2771/1999, granting budget institutions the right to have own accounts for earmarked purposes. Most of these are independent, or “out of budget,” while only eleven off-budget funds are shown in budget documents, (see paragraph 56). In this area there are less extensive controls, and limited oversight on the use of funds from these accounts. As previously indicated there is no presentation of the fiscal balance data for the general government, and no discussion of deviations between budgeted and actual outturn.

66. Statements of accounting policy are not included in the budget and final accounts documents, but are clearly stated for budgeting and accounting purposes. The Greek accounting system is based on a standard cash-based approach and regulated by Law No. 2362/1995. The GAO is responsible for maintaining the revenue and expenditure accounts on a regular basis and preparing the annual accounts, including the balance sheet for each financial year. The annual accounts classify receipts and payments in the same way as they are classified in the budget. The State accounts distinguish those showing budget implementation and those that show the management of funds outside the budget. The balance sheet is a summary account of the main cash flows and financial assets and liabilities as explained in paragraph 58. The authorities have expressed their desire to move towards accrual accounting with the implementation of a computerized financial management information system.

Table 1.

Greece: Central Government Budget 2002–04

(Euro million)

Table 1.

Greece: Central Government Budget 2002–04

(Euro million)

			2002		2003		2004
			Budget	Outrun	Budget	Outrun	Budget	Outrun
ORDINARY BUDGET
1. Net revenue (a-b)			37,453	37,081	38,900	37,500	41,420	39,236
a. Revenue			38,920	39,048	41,050	39,881	43,620	42,035
	Direct taxes		14,618	14,813	15,510	15,397	16,385	16,484
	Indirect taxes		20,666	20,989	22,035	21,484	24,341	22,999
	Non-tax revenue		3,636	3,246	3,505	3,000	2,894	2,571
b. Tax refunds			1,467	1,967	2,150	2,381	2,200	2,799
2. Expenditure(a+b) (2)			36,637	37,431	39,385	40,735	42,550	45,471
a. Interest payments			8,951	9,134	9,400	9,416	9,750	9,466
b. Primary expenditure			27,686	28,297	29,985	31,319	32,800	36,005
	Salaries and pensions		14,123	14,533	15,130	15,602	16,404	17,565
		Wages and salaries	10,380	10,547	11,097	11,431	12,038	12,622
	Grants to social security funds and medical care		4,548	4,747	5,560	5,993	6,223	7,249
	Operating and other expenditure		6,004	5,967	6,097	6,211	6,573	7,403
	Returned resources		3,011	3,051	3,199	3,512	3,600	3,788
3. Ordinary budget deficit (1–2)			816	−350	−485	−3,235	−1,130	−6,235
Public Investment Program			4,085	2,003	4,100	1,823	4,120	3,082
4. Revenue (a+b)			3,894	1,989	4,000	1,746	4,020	2,994
a. Inflows from EU			191	14	100	77	100	88
b. Other
5. Expenditure (a+b+c)			8,948	7,014	8,918	8,435	9,250	9,515
a. Co-financed expenditure			6,192	3,883	5,770	4,461	5,300	4,765
b. National investment program			1,347	2,004	1,848	2,418	2,550	2,500
c. Expenditure for Olympic games infrastructures			1,409	1,127	1,300	1,556	1,400	2,250
6. Public investment program deficit (4-5)			-4,863	-5,011	-4,818	-6,612	-5,130	-6,433
7. Central Government Deficit (3+6)			-4,047	-5,361	-5,303	-9,847	-6,260	-12,688
	(percent of GDP)		-0.029	-0.038	-0.035	-0.064	-0.038	-0.077
	GDP		139,574	141,669	150,091	153,472	163,934	165,280

View Table

Table 1.

Greece: Central Government Budget 2002–04

(Euro million)

			2002		2003		2004
			Budget	Outrun	Budget	Outrun	Budget	Outrun
ORDINARY BUDGET
1. Net revenue (a-b)			37,453	37,081	38,900	37,500	41,420	39,236
a. Revenue			38,920	39,048	41,050	39,881	43,620	42,035
	Direct taxes		14,618	14,813	15,510	15,397	16,385	16,484
	Indirect taxes		20,666	20,989	22,035	21,484	24,341	22,999
	Non-tax revenue		3,636	3,246	3,505	3,000	2,894	2,571
b. Tax refunds			1,467	1,967	2,150	2,381	2,200	2,799
2. Expenditure(a+b) (2)			36,637	37,431	39,385	40,735	42,550	45,471
a. Interest payments			8,951	9,134	9,400	9,416	9,750	9,466
b. Primary expenditure			27,686	28,297	29,985	31,319	32,800	36,005
	Salaries and pensions		14,123	14,533	15,130	15,602	16,404	17,565
		Wages and salaries	10,380	10,547	11,097	11,431	12,038	12,622
	Grants to social security funds and medical care		4,548	4,747	5,560	5,993	6,223	7,249
	Operating and other expenditure		6,004	5,967	6,097	6,211	6,573	7,403
	Returned resources		3,011	3,051	3,199	3,512	3,600	3,788
3. Ordinary budget deficit (1–2)			816	−350	−485	−3,235	−1,130	−6,235
Public Investment Program			4,085	2,003	4,100	1,823	4,120	3,082
4. Revenue (a+b)			3,894	1,989	4,000	1,746	4,020	2,994
a. Inflows from EU			191	14	100	77	100	88
b. Other
5. Expenditure (a+b+c)			8,948	7,014	8,918	8,435	9,250	9,515
a. Co-financed expenditure			6,192	3,883	5,770	4,461	5,300	4,765
b. National investment program			1,347	2,004	1,848	2,418	2,550	2,500
c. Expenditure for Olympic games infrastructures			1,409	1,127	1,300	1,556	1,400	2,250
6. Public investment program deficit (4-5)			-4,863	-5,011	-4,818	-6,612	-5,130	-6,433
7. Central Government Deficit (3+6)			-4,047	-5,361	-5,303	-9,847	-6,260	-12,688
	(percent of GDP)		-0.029	-0.038	-0.035	-0.064	-0.038	-0.077
	GDP		139,574	141,669	150,091	153,472	163,934	165,280

67. Fiscal management overly concentrates power in the MEF, to the detriment of accountability and transparency in other parts of the budget system. Recent problems in fiscal reporting have revealed the extent to which public finances are affected by institutions outside the central government that are not incorporated in the State budget. This report has reviewed in some detail the financial relationships between the central government and various other sectors of the general government. While the legal framework is clear on their relative roles and responsibilities in fiscal management, in its implementation this has been interpreted so as to concentrate control within the executive branch, and most particularly in the MEF. This degree of centralized control has not always supported accountability and transparency. It is notable that when examining fiscal roles and responsibilities, the MEF appears to have taken over many of the financial functions that are carried out in other countries by ministries. As a result the MEF intervenes at all stages, and at a very detailed level, redrafting ministry budgets, approving reallocation requests, and tightly controlling their ability to spend through a detailed system of pre-audit, quarterly allotments and monthly credit limits. The result has been to remove line ministry ownership of their budgets, undermining their accountability, and offering no incentive for them to improve their financial management capacity. The same applies to other units of central government, like the hospitals, as well as local governments, where central fiscal controls have been pervasive. As indicated in this report not only has this highly centralized form of budget management affected the balance of power between different levels of government, but it also has had its impact on the balance between the executive and legislative branches. The need to devolve power from the MEF to other units of government to make them accountable, and to put their relationship on a sounder and more transparent footing, is a common message underlying many of the recommendations found in the report.

68. There is scope for improving the reconciliation of budget accounting (above-the-line) and financing (below-the-line) data. There are some weaknesses in reconciling accounts during the fiscal year that impede the provision of adequately comprehensive and accurate financial information. The main bank account of the government No. 200 at the BOG does not appear fully reconciled. The GAO State Accounts Department does reconcile this account to the extent of its own transactions. However, this account is operated by a number of other GAO departments, as well as the Investment Department of the MEF, and it is unclear if these departments reconcile their respective transactions on Account No. 200. Moreover, in addition to Account No. 200, there are eleven groups of accounts with thousands of subaccounts, each managed by different agencies. The State Accounts Department is not comprehensively monitoring the bank reconciliation of these agencies. Additionally, the revenue and expenditure accounts are not reconciled by the GAO with the accounts of the respective line ministries and revenue collecting agencies. These agencies do not receive any accounting data from the GAO with respect to their own transactions. It is likely that this lack of reconciliation will have a negative impact on the quality of the accounting records kept by line ministries. However, the final accounts are required to be fully reconciled after a period no longer than four months after the end of the fiscal year. As a result, the reconciliation currently carried out is limited and there is a considerable discrepancy between above-the-line fiscal data and below-the line financing data. In addition, the government needs to produce data on budget financing on a regular basis, which should, in principle, also include financing through arrears, privatization receipts, etc.

Independent oversight

69. External audit is carried out by the Court of Audit whose independence is established in the Constitution. The Court of Audit plays a very important role in the Greek public administration in providing assurances on regularity and legality of the budgetary process. The Court's functioning is modeled on the French auditing system where the Court is part of the judicial system, technically under the Ministry of Justice. Its powers are enshrined in Articles 73, 79, and 98 of the Constitution,³³ and cover three main functions: to hold to account all those that manage funds (both those that commit funds, the “coordinators,” and those that spend, “public accounting officers”); to judge on disputes arising from the audit; and to inform the Parliament on the legality and soundness of the management of public funds. The Court is headed by a President that is chosen by Cabinet on the advice of the Minister of Justice, and is selected from all members of the supreme judicial body, the Plenum, who have been in office for more than four years. Staff³⁴ are classified as judicial public servants and are usually trained economists, lawyers or accountants. The Court prepares its own budget according to MEF directives, and submits this to the MEF through the Ministry of Justice. The MEF issues the final form of the Court's budget as a separate chapter in the budget of the Ministry of Justice, and submits this to the Parliament for approval.

70. The focus of audit is narrow; a reorientation of external audit is required. There are a number of potential weaknesses in this auditing system which should be reviewed. The Court of Audit is heavily involved in the pre-audit of all nonregular expenditure of central government, i.e., operations and maintenance, and capital expenditures. To some extent this compromises the ex-post audit of the Court, as it implies an assessment of the Court's own actions.³⁵ Pre-audit work consumes half of the Court's budget, involving it in the detailed examination of payment orders issued by various public bodies to assess the accuracy, legality and regularity of expenditure. This work has been extended recently in 2003 to municipalities, where such an audit did not exist. For the central government, the COA focuses on recurrent supplies expenditure, only 10–15 percent of the budget, but it also reviews larger tenders, concentrating on the legal procedures of executing the contract. Other risk areas identified by the COA are the legal entities and local governments, but due to the large numbers of these institutions only limited COA involvement is possible. The COA does not review guarantees or tax expenditures, and they are not involved in auditing tax revenues³⁶ or public debt, mainly because they have no technically competent staff in this area. The Court is dominated by a legal focus, rather than on the efficiency or effectiveness of expenditures.³⁷ Many countries have moved away from a narrow financial regularity audit that dominates Greek external audit, to systems and value-for-money audits, as better informing the public on integrity of public operations. The difficulties identified by the COA in moving to new areas is that currently it does not have qualified staff, that its existing audit work is already constrained by its budget, and perhaps more significantly, parliamentarians have not expressed much interest in this work.

71. Parliament discusses external audit reports, but systematic review is limited. There is common agreement that COA reports,³⁸ that are published and presented to Parliament with the following year's budget, do not have an impact on the quality of resource allocation. While discussed within the Parliamentary Finance Committee their conclusions go no further than an assessment of the legality of detailed transactions. In part this is the result of the lack of policy content in the budget, and its detailed line item presentation. Without identification of the outputs to be derived from these line items, the COA is not able to discuss efficiency of spending, and without a policy orientation the COA is not capable of offering a view as to the effectiveness of spending in achieving the government's policy objectives. Follow-up of audit findings is largely left to the executive. A more extensive audit, and in depth review of government finances, would be needed to attain satisfactory international standards of external audit. Thus the COA's relation with the Parliament is limited to the submission of the annual financial statement and a report thereon.

72. There is limited focus on the macroeconomic picture underlying the budget. The Macroeconomic Analysis Department in the MEF does prepare forecasts for the coming year and three forward years, and these are contained in the Report on Current Developments of the Greek Economy, published twice year, as well as in their report for the EU's SGP. The models on which these projections are based are not published although the underlying macroeconomic assumptions are. While there is no external scrutiny of the underlying model as such, it appears their work is regarded as a technical exercise without political interference. It would be preferable if the underlying model would be made publicly available and the implications of macroeconomic risks be clearly discussed in the budget documentation.

73. The National Statistical Service of Greece (NSSG) is formally responsible for national statistics system, and utilizes fiscal information to prepare national accounts. It has the primary role of disseminating fiscal information internationally, and in reporting to the EU. The NSSG is a General Secretariat assigned to the MEF, and its head is nominated by the minister of economy and finance. The professional independence of the NSSG is an essential precondition to its effective functioning. According to the Legislative Decree 3627/1956, the NSSG has administrative and financial independence. While the NSSG has not been given legislative assurance of full independence, it regards itself as technically independent in its main function of collecting, processing, and disseminating government finance statistics consistent with its legal framework.