BRUSSELS--Greece's reform efforts in the wake of its mammoth
bailout still face important hurdles despite a string of wins for
the government in Athens, the European Commission said in a review
of Greece's performance, Friday.
Dismantling vested interests and swiftly stemming the rising
tide of bad loans on Greek banks' balance sheets are key sources of
trouble for the slowly recovering Greek economy, the commission
said.
In a review of how Greece is faring under its EUR240 billion
bailout, funded by the euro area and the International Monetary
Fund, the European Union executive said the Greek economy was set
to grow by 0.6% this year, a further 2.9% in 2015 and 3.7% in
2016.
Greece has lost about a quarter of its economic output over the
last six years, but the review said it looks as if the economy has
now bottomed out.
The review said an important landmark for the Greek bailout--the
achievement of a primary budget surplus in 2013--had been partly
reached by significant underspending on social welfare and the
early absorption of EU support funding. Very little of that will be
carried over in 2014 and beyond, it noted, as Greece will seek to
hit bigger primary-surplus targets set by its creditors.
The Greek bank-recapitalization fund still has some EUR11
billion which should be preserved in case the banks need extra cash
to cope with nonperforming loans, which rose to 33.1% in 2013.
Greek banks have been tapping capital markets to raise funds in
recent weeks following a report by the Greek central bank in March
that said they needed EUR6.4 billion in extra capital.
"The Bank of Greece should remain vigilant in its oversight of
the banking system and proceed forcefully in requiring banks to
quickly work out their large stock of impaired assets," the report
said.
Greece is set to soon start talks with its bailout creditors to
get debt relief--a promise they made to the country on the
condition that it would continue to stick to its economic program
and build a primary surplus.
Without any additional measures to ease that debt burden, which
reached 177% of economic output in 2013-2014 according to the
commission's report, debt will decline to 125% of gross domestic
product in 2020 and 112% of GDP in 2022. That would be slightly
higher than the targets set by Greece's creditors at the behest of
the IMF. A discussion on the debt relief question is set to take
place in the second half of this year.
The country's bailout program needs to be supplemented by an
extra EUR2 billion through to the end of August, the experts
said--part of a total EUR5.5 billion gap until May 2015. But they
noted that they had identified a number of things Greece can do to
plug that gap.
The publication of this review is the final step before the euro
zone bailout fund can disburse a long-held EUR6.3 billion tranche
which has already been cleared by euro-zone finance ministers. The
payment of the loan tranche is expected on April 28, a euro-zone
official said. Two more tranches, of EUR1 billion each, will follow
in June and July.
Viktoria Dendrinou contributed to this article
Write to Matina Stevis at matina.stevis@wsj.com
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