GREECE WILL receive a €9 billion tranche of euro zone loans after the European Commission yesterday cleared the second instalment of the bailout facility agreed to alleviate its fiscal troubles.
Olli Rehn, the Economics and Monetary Affairs Commissioner, praised the measures taken by George Papandreou’s government in recent months, but warned of possible problems ahead.
“Greece has managed impressive budgetary consolidation during the first half of 2010, and has achieved swift progress with major structural reforms,” Mr Rehn said. However, he warned: “Despite the significant progress made, challenges and risks remain.
“The main immediate challenge is to safeguard adequate liquidity and financial stability of the banking sector.”
The commission said euro zone finance ministers would approve their part of the instalment at their next meeting on September 7th.
Mr Rehn’s assessment follows an August 5th visit to Athens by the commission, the European Central Bank and the International Monetary Fund, the “troika” that is co-ordinating the €110 billion facility.
The commission spoke approvingly of faster-than-planned reductions in the Greek budget deficit and cash spending, achieved partly by cutting public sector wages and trimming back on capital expenditure. However, it said revenue generation was still lagging, and warned that the effort would have to be continued in the second half of 2010 and beyond.
It endorsed the structural fiscal reforms undertaken since May, particularly within the public sector. Measures that the commission had pushed for, such as a census of civil servants and a crackdown on tax evasion, were also proceeding in a satisfactory way, it said, as were labour market reforms.
“Efforts need to be intensified to improve the collection and processing of data which are essential for budgetary control.”
Last week it emerged that the Greek economy contracted by 1.5 per cent in the second quarter, its seventh consecutive period of negative growth. It is the only country in the 16-member euro zone to remain in recession.
Inflation is also above norms, at 5.2 per cent, as tax rises were rapidly passed on to consumers.
A spokesman for Mr Rehn said the pay-out would not be affected by a decision last week by the Slovak parliament to pull out of the facility.
Its stake represents just 1 per cent of the total €80 billion euro zone tranche of the package. The shortfall in the fund is to be addressed by the euro- zone’s finance ministers in their September meeting. – (Copyright The Financial Times Limited 2010)
