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EC issues a number of warnings over Greece's reform commitment

Staff Writer |
The European Commission has issued a number of warnings over Greece’s ability to complete specific reform commitments due for the end of 2018, which are the prerequisites for the return of profits made by European central banks from Greek bonds.

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In its second Enhanced Surveillance Report for Greece, the European Commission made clear that “this report could serve as a basis for the Eurogroup to decide on the release of the first set of policy contingent debt measures worth 970 million euros.”

Although, the Commission acknowledged that “Greece has made considerable progress in completing the implementation of the specific reform commitments,” it warned that “further steps are needed to fully implement all reform commitments on fiscal and fiscal-structural policies.” Moreover, it said that overall the balance of risks is tilted to the downside.

“Consumption growth may be higher than expected in 2019, should the recent increase in the minimum wage translate into higher consumption spending. However, downside risks dominate the forecast.

Possible wage pressures pose downside risks both on investment recovery and on export performance due to losses in competitiveness.

Risks to investment are exacerbated by the high level of non-performing loans which continues to weigh on the intermediation capacity of banks. Finally, the global and in particular the EU slowdown, may further hamper Greece's recovery,” said.

The EC reiterated its forecasts for real GDP growth of 2% in 2018 and to around 2.2% and 2.3% in 2019 and 2020, respectively.

However, the Commission remained concerned over Greece’s commitment to restore health of the banking sector.

“Despite progress made in the context of the financial assistance programmes and the improved liquidity situation of Greek banks, Greece’s financial system still faces important challenges, in particular the very high levels of non-performing loans (NPLs).” The Commission said the reduction of NPLs has continued, although the take-up of tools for their resolution lags behind expectations.

As regards as the revision of the scheme for the protection of primary residences, known as the Katseli law “a large number of important open issues remain,” EC argued.

The Commission also urged Athens to complete the complementary measures to address the shortfall on staffing levels of the Independent Agency for Public Revenue.

The sale of the lignite fired plans by PPC is another issue of concern, as the failed auction process “is an important setback to the achievement of a critical structural reform, which aims to introduce competition, attract investment, raise competitiveness and thus support potential growth.”

Also, the double-digit percentage increase of minimum wage raises concerns as regards the medium-term implications for growth and competitiveness, EC noted while the court ruling that roll back previously legislated salary and pension arrangements could derail the country's fiscal outlook.

Summing up, the Commission said “developments in some areas raise concerns about reform delivery and continuity, including with a view to risks to the medium-term outlook.”

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