On the occasion of the formal inception of negotiations in the context of the 2nd programme review this week, this note takes a close look at the main items on the agenda, placing particular attention to a new package of proposed reforms to align Greece’s labour market institutions with best practices internationally and in Europe. As a reminder, Greece has committed to undertake a wide range of labour market reforms with a view to enhancing competitiveness and the growth potential of its economy. To this end, a consultation process was launched in July 2015 led by a group of eight independent experts.
Part I - 2nd programme review and labour market reform: background and key issues
Timely completion of 2nd review crucial for the near-term outlook
The 2nd review of the 3rd Economic Adjustment Programme for Greece is expected to commence in mid-October 2016 with the arrival of the heads of the EC/ECB/IMF/ESM mission to Greece. The swift completion of the 2nd review is of particular importance not only because it will unlock additional programme financing (€6.1bn) but also because it could trigger a number of positive developments for the domestic economy.
A short note on the scope and the effects of labour market reforms implemented in Greece since the outbreak of the crisis
Since 2012 a number of changes were introduced in the framework for the minimum wage setting and collective bargaining, with the intention to reduce wages in a short period of time and achieve internal devaluation within the Euroarea (EA). In broad lines, in the pre-crisis period, the minimum wage standards were set by the extended National General Collective Labour Agreement (EGSSE) at national level, covering all employees including the non-skilled workers who were not covered by a sectoral or other agreement.
Labour market reform: a key item in the 2nd review agenda According to the Memorandum of Understanding (MoU; dated 19 August 2015) and in the context of enhancing competitiveness and growth, Greece committed to undertake a wide range of reforms in the labour market.
Expert Group recommendations on Greek labour market institutions: a good starting point for the upcoming negotiationsThe recommendations of the Expert Group, issued recently, are not binding but, as the Commissioner for Employment, Marianne Thyssen reportedly stated, they constitute a good starting point for the upcoming negotiations in the context of the 2nd programme review. These negotiations are expected to be pretty difficult given the strong views of the parties involved on the labour reforms that Greece should adopt.
In the following section, we discuss the underlying principles, scope and philosophy of the Expert Group recommendations, with an aim to gain a deeper understanding of the issues at hand and the way they may affect the forthcoming 2nd programme review.
Part II - Expert Group recommendations on Greek labour market institutions: underlying principles, scope & philosophy
The Expert Group agreed on a number of guiding principles in preparing their recommendations for the upcoming review of Greek labour market institutions.
Industrial conflict: strikes & lock-outs Expert Group findings & recommendations: The Expert Group sees no need for stricter rules on strikes or for a removal of the current prohibition on lock-outs.
Collective dismissals & short-term work Expert Group findings & recommendations: Most Expert Group members seem to agree that the current system of administrative intervention in Greece for the approval or prohibition of collective dismissals has been applied only in a comparatively small number of cases, and thus, its abolition does not seem to be an actual priority for employers’ organizations. In any case, five group members abstain from making any recommendations on the administrative authorization for collective dismissals on the basis that this issue is currently being discussed at the European Court of Justice, while two group members recommend its abolition.
Minimum wage and collective bargaining Background note: In the pre-crisis period, the extended National General Collective Labour Agreement (EGSSE) set minimum wage standards at the national level covering all employees including the unskilled workers who were not covered by a sectoral or other agreement.
Expert Group findings & recommendations on the minimum wage: The Expert Group agrees on the need to have a statutory minimum wage in Greece, which takes into account domestic economic conditions as well as prospects for productivity, prices, competitiveness, employment, income and wages.
Expert Group findings & recommendations on collective bargaining:
Part III - Greek labour market snapshot
In support of the latter view, Greece was ranked 114th among 138 countries in terms of labour market efficiency in the World Economic Forum Global Competitiveness Index (WEFGCI) for 2016, clearly a disappointing result. The respective EA average was 51 (including Greece and Italy, which ranks 119th). Note that the labour market efficiency ranking for Greece was well below the ranking of the country in the general WEFGCI index (86th among 138 countries with the respective EA average at 36).
As regards two crucial labour market indicators, i.e. youth unemployment and the rate of long-term unemployed (people actively looking for but unable to find a job for more than 12 months), Greece’s recent performance relative to the rest of the euro area has been hugely disappointing, raising credible concerns for a particularly high and persistent structural jobless rate at steady state.
A series of labour market reforms were implemented in early 2012 as prior actions to the 2nd Economic Adjustment Programme for Greece.
Graph 1: ULC-based REER for Greece and Euroarea (2000=100, annual basis)
Source: EurostatNote: REER deflated by nominal ULCs (total economy) against a panel of 37 countries (EU28 plus 9 other industrial countries).
While the reforms introduced in early 2012 contributed to the liberalization of the domestic labour market and accelerated the internal devaluation process it can also be claimed that they have had a number of unintended consequences in the form of increased income inequality and poverty. Part of these negative effects might be attributed to the labour and product markets reforms implementation sequence, i.e. the labour market was liberalized before the products market and as a result the real wage adjusted downwards faster than the goods’ prices.
Graph 2: Income Inequality Indicator for Greece and Euroarea (2007=100, annual basis)
Graph 3: People at Risk of Poverty after Social Transfers Indicator for Greece and Euroarea
(2007=100, annual basis)
In any case, the aforementioned developments should not be solely attributed the labour market reforms implemented in Greece following the outbreak of the sovereign debt crisis. The uneven (and, in many instances, slow) pace of implementing much needed structural reforms to modernize the functioning of the state and create a more business friendly domestic environment, the lack of programme ownership and the unprecedented recession can also be blamed for the present dire state of the domestic labour market.
AppendixOpen items for 2nd programme review
Legislate the medium term fiscal strategy 2017 – 2020.
Present a medium term action plan to ensure compliance with the Late Payment Directive.
Adopt measures to provide for adequate resources so as to allow the Revenue Agency to operate effectively.
Complete the customs reorganization.
Adopt legislation to reform welfare benefits based on World Bank Review. Launch the nationwide roll-out of the guaranteed minimum income (GMI) scheme.
Amend the legal framework for the out-of-court workout with detailed provisions.
HFSF finalise the review of the boards of the banks in which the RFAs apply.
Amend the corporate insolvency law in line with an agreed proposal.
Regulated professions: agree with the Institutions a roadmap for the liberalisation of the reserved activities of engineers.
Adopt the foreseen legislation according to the investment licensing reform roadmap in three sectors.
Adopt the legislation for the one-stop-shops for business.
Adopt the remaining measures needed to fully implement the selected reforms on competition, investment licensing and administrative burden identified in the first round of the ex-post impact assessment.
Review the gas release programme, improving conditions of access for alternative suppliers and substantially increasing the quantities available.
The Port Regulatory Authority prepares its internal regulations and needed laws to ensure its full functionality.
Bring collective dismissal and industrial action frameworks and collective bargaining in line with EU best practices.
Prepare a three-year Education Action Plan.
Implement the new legal framework for nationwide cadaster offices.
Launch the first auction under the NOME mechanism in the Greek electricity market.
Special Secretariat for Water (SSW) will finalise, with the support of technical assistance, the charging rules for water services.
Implement the logistics law.
Adopt an integrated action plan to fight undeclared and under-declared work.
Agree with the Institutions on the processes for determining the remaining portfolios of real estate and SOEs that will be transferred to the Fund.
Agree on the process for determining the exclusions of remaining portfolios of real estate and SOEs not to be transferred to the Fund
TAIPED will assess its regional airport and port assets and will transfer to the new Fund those it does not plan to develop.
Finalise internal regulations of the Privatisation and Investment Fund in line with the December 2015’s Action Plan.
Complete the selection of the Board of Directors of the Privatisation and Investment Fund, including the CEO.
The Board of Directors of the Privatisation and Investment Fund to be constituted as a body.
Issue secondary legislation to implement the reformed performance assessment scheme.
Complete the first phase of the rationalisation of the specialised wage grids.
Adopt legislation to introduce a new permanent mobility scheme.
On revised Code of Civil Procedure, adopt the key Presidential Decrees required by the transitional provisions in Law 4335/2015 on the determination of the value of the property seized on the basis of its market value and the first offer price for the auction.
Amend and implement the legal framework of the financing of political parties on key items.