Brussels, 19 August 2010
Commission considers Greece meets the conditions to receive the second instalment of loans by euro area Member States
The European Commission, on 19 August, assessed measures taken by Greece to comply with the Council Decision of 10 May 2010 to remedy the situation of excessive deficit. The Commission has also published a report in the context of the economic adjustment programme financed by the euro-area Member States and the International Monetary Fund. The Commission considers that the overall positive assessment of compliance paves the way for the next tranche of loans and it expects the euro-area Member States to approve and disburse this second instalment.
"Greece has managed impressive budgetary consolidation during the first half of 2010 and has achieved swift progress with major structural reforms", said Economic and Monetary Affairs Commissioner Olli Rehn. He nevertheless noted that "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. At the same time, the structural reform agenda needs to be pressed ahead to unleash the huge potential for raising growth".
The state budgetary developments over the first half of 2010 have been positive, with the deficit declining by some 46%, faster than planned. Total state cash spending was reduced by 16.9% compared to the first half of 2009, reflecting primary expenditure cuts (including public wages), but also capital expenditure. However, there are a number of risks attached to the budgetary target. Total cash revenue increased by 5.9% in the first half, well below the annual target of 15.6% increase, despite the higher-than-expected nominal GDP growth on the back of higher-than-expected inflation and relatively tax-favourable growth composition. In addition, there are risks to the target stemming from the accumulation of arrears, the financial underperformance of local governments and social security funds so far and a catch-up in spending in the second half of the year. If needed, corrective action shall be taken, to avoid any slippages in the budgetary execution in the second part of the year.
Significant progress has been achieved in structural fiscal reforms. Progress with pension and public administration reform has been made ahead of schedule. The adopted parametric changes to the pension system should significantly improve its long-term sustainability. Some further actions may be needed in 2011, depending on the forthcoming long-term projections. Other areas of progress include the preparation of the new organic budget law, measures against tax evasion, a census of civil servants and steps forward in setting up a single payment authority for public wages. Efforts need to be intensified to improve the collection and processing of data which are essential for budgetary control.
Beyond fiscal-related issues, important steps forward have also been made with the ambitious broader structural reform agenda. Ambitious labour market laws, that will increase the economy's adjustment capacity, have been adopted ahead of schedule. Additional reforms that are scheduled for early implementation concern transport, where important progress has already been made with liberalising road haulage and energy. Business environment reforms, measures to accelerate absorption of structural and cohesion funds and horizontal legislation to implement the services directive are on track. Outstanding challenges relate to the opening-up closed professions, deregulation, elimination of barriers to development of tourism and retail. The privatisation and restructuring of state-owned companies – in particular in the areas of rail transport and energy – need to be speeded up.
The Financial Stability Fund has been established and the Bank of Greece has intensified banking supervision. In order to ensure adequate liquidity for the banking sector, legislation enabling a new tranche of government guaranteed bonds amounting to EUR 25bn is envisaged.
The Commission's assessment of compliance will be discussed at the 7 September Eurogroup and ECOFIN meetings.
The related documents are available at: