IMF and EU report ‘remarkable’ progress in Greece

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Published: August 5,2010

Tags: debt, economy, markets

ATHENS, Greece — Greece has made “remarkable” progress implementing an austerity program to tackle its debt crisis and is expected to receive the second installment of rescue loans next month, the IMF and EU said today. They warned, however, that the country still faces significant risks and challenges.

Greece came to the brink of defaulting on its mountain of debt in May, and was saved by the first installment of a €110 billion ($145 billion), three-year package of rescue loans set up by the International Monetary Fund and by other European Union countries using the euro currency.

In return, it has been pursuing a strict austerity program which has seen it cut civil service pay, trim pensions and increase taxes. The government’s progress has been under quarterly review by the IMF, the European Central Bank and the European Commission, the EU executive.

“Our overall assessment is that the program has made a strong start,” the organizations said a joint statement.

All end of June targets had been met, they said, “led by a vigorous implementation of the fiscal program, and important reforms are ahead of schedule. However, important challenges and risks remain.”

Athens hopes to receive the second installment of loans — €9 billion ($11.8 billion) — by Sept. 13.

IMF official Poul Thomsen said that although approval by IMF, ECB and Commission headquarters was needed to release the funds, Greece was likely to receive the next installment.

“I’m definitely confident that we are going forward with this disbursement,” he said during a joint news conference in Athens after a two-week inspection visit by officials from the IMF, ECB and Commission.

Athens received the first loan installment, worth €20 billion, in May.

“The program is indeed off to a very strong start but as expected there are pressure points,” Thomsen said, adding that there was “clearly a need to control extra budgetary expenses,” including in state hospitals and at the municipal level.

Servaas Deroose, a representative for the European Commission, said major reforms, particularly in the pension system, were ahead of schedule.

“The program has made remarkable progress,” he said, but added that there was “a need to consolidate the progress of the first half.”

Greece has pledged to reduce its deficit from 13.6 percent of gross domestic product last year to 8.1 percent at the end of 2010 and under 3 percent — the EU’s official upper limit — in 2014.

The debt crisis broke out when the newly elected Socialist government last October revised its deficit projection from 3.7 percent of GDP, and said the country’s statistics had been fudged by the outgoing Conservatives. The revelation of the size of Greece’s debts sent the country’s borrowing rates on the international markets skyrocketing to unsustainable levels, reaching four times those of Germany’s.

The IMF and eurozone rescue package was aimed at giving the country time to implement difficult reforms without having to tap the bond market to service its existing debt — although the rescue loans still carry a higher interest rate than those faced by other EU countries, at about 5 percent.

Thomsen said markets were beginning to react positively to the government’s austerity measures, but that Athens was not expected to return to the international bond market in the near future.

“Markets are starting to realize that Greece is making major reforms and this is not business as usual,” he said, adding that a “sustained period of policy implementation” was still needed.

“At this stage we do not expect a return to the bond market anytime soon,” he said, without specifying a time frame.

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