Yesterday, the European Commission assessed measures taken by Greece to comply with budget reduction and austerity measures set out in an agreement reached in May among Greece, the International Monetary Fund (IMF), the Commission, and the European Central Bank (ECB) under which the parties agreed to a €110 billion ($145 billion) financing package in an attempt to remedy Greece’s excessive debt situation. The Commission reported that its positive assessment of Greece’s compliance with mandates under the May agreement should pave the way for the approval by the Euro-area Member States of disbursement of the second tranche of loans due next month.
The Commission commended Greece on progress achieved ahead of schedule in structural fiscal reform and pension and administration improvements as well as progress made in several other areas of reform essential for budgetary control. The Commission did note, however, that despite positive budgetary developments over the first half of 2010, including a 46% deficit decline and a 16.9% reduction in total state cash spending compared to the first half of 2009, total cash revenue increased by only 5.9%, well short of the target 15.6% annual increase. The Commission also pointed out risks to Greece’s budgetary target stemming from the accumulation of arrears, the financial underperformance of local governments and social security funds, and increased spending in the second half of the year. "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. Rehn cautioned, however, that "despite the significant progress made, challenges and risks remain” including the need to safeguard adequate liquidity and financial stability of the banking sector.
The Commission’s assessment of Greece’s compliance will be discussed by the Euro zone finance ministers when they next meet on September 7, 2010 at which time, the ministers will decide whether to approve the €9 billion aid payment due to Greece next month.