BRUSSELS (MNI) – Greece has made a strong start with its austerity
plan, which paves the way for the debt-ridden country to receive a
second tranche of loans worth E9 billion, the European Commission,
European Central Bank and International Monetary Fund said in a joint
statement on Thursday.

Greece is set to receive the second part of a E110 billion aid deal
that was agreed earlier this year on the condition that it adhere to the
strict austerity programme it agreed with the IMF and its Eurozone
partners.

“Our overall assessment is that the programme has made a strong
start,” today’s statement said. “The end-June quantitative performance
criteria have all been met, led by a vigorous implementation of the
fiscal programme, and important reforms are ahead of schedule.”

This positive assessment “will pave the way” for the disbursement
of the second tranche of aid after formal approval by the Commission,
the Eurogroup, and the IMF’s management and Executive Board, the
statement said.

“However, important challenges and risks remain,” the statement
warned.

The statement was released after a joint European Commission,
European Central Bank and International Monetary Fund mission to Athens
which assessed Greece’s progress.

In May, with Greece virtually frozen out of capital markets and the
crisis threatening to spread beyond its borders, Eurozone partners
agreed to provide up to E80 billion in loans to the debt-laden country,
and the IMF agreed to put up another E30 billion in standby loans.

The second loan installment will include E6.5 billion from Eurozone
member states and E2.5 billion from the IMF. The first tranche, approved
in May, was for E20 billion, with E14.5 billion from the Eurozone and
E5.5 billion from the IMF.

As Market News International reported earlier this week, sources
close to the inspection said that while approval of the second tranche
of loans seemed secured, Athens must show determination to pass the
promised reforms despite social unrest.

The prime concern of inspecting officials — locally called “the
Troika” for the three participating organizations — remains government
revenues, which are trending below target. The Finance Ministry appears
confident that once tax increases kick in, including a VAT hike of 23%
on July 1, the targets will be met.

Doubts persist, however, since tax evasion is widespread and VAT
receipts remain low amid the sharp recession. Inflation has surged above
5% the past two months. The report by the EC-ECB-IMF inspection team is
expected to call for measures to curb inflation and toughen controls on
price-gouging.

Another risk is the deficit in the health sector, especially at
hospitals, where audits are currently under way to determine their
financial state.

Pensions funds are another source of concern, as most of them have
already used up their annual budgets and are now asking for further
government contributions.

The state’s financial obligations towards hospitals, pension funds
and local government have raised concerns as to whether the drastic
spending cuts seen in the first half of the year are sustainable.

A litmus test of the government’s authority will come with the
expected ratification in September of a bill to open up closed
professions. The first attempt to do so, with fuel-tanker drivers,
triggered strikes that left the country without gas supplies for three
days.

The government implemented an emergency plan and called in the
truckers for civil duty under the threat of prison sentences. The strike
was lifted, but truckers say they will stop work again if negotiations
with the government fail to satisfy their demands.

–Brussels: 0032 487 (0) 32 803 665, echarlton@marketnews.com

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