Greece's lenders warn of "very large" risks to bailout

Mon Dec 17, 2012 10:33am EST
 
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ATHENS (Reuters) - Political resistance and potential court challenges are among "very large" risks to reforms required for Greece's bailout program, the country's European lenders said on Monday.

The long-awaited report from the European Commission and the European Central Bank details the findings of the "troika" of the EC, ECB and the International Monetary Fund on Athens' efforts to meet targets under its 130-billion-euro ($170-billion) bailout.

The report formally confirmed that Greece deserved its next tranche of aid under the bailout, but warned Athens still risked falling short on its commitments.

"The key risks concern the overall policy implementation, given that the coalition supporting the government appears fragile and some components of the program face political resistance, despite the determination of the government," the report said.

"Important budgetary measures are likely to be challenged in courts, which could lead to the need to fill a fiscal gap emerging as a consequence."

Greece's conservative-led government has promised Athens will restore its damaged credibility but the coalition has faced attacks both from within and outside on its plan to push through a new round of austerity.

The report warned that the impact of spending cuts in 2013 on a weak economy may be stronger than expected, though that could be stemmed by the government paying off arrears.

Greece's economy is expected to contract by about 6 percent this year - its fifth in recession - and by a further 4.2 percent next year before growing 0.6 percent in 2014, the report said, warning that Athens must implement reforms to meet those forecasts.

"Should product and services market reforms not accelerate as foreseen under the program, positive economic growth could not return in 2014 as foreseen," the report said.   Continued...

 
A woman holds a black flag during a rally against state sector layoffs demanded by the country's international lenders, outside the parliament in central Athens December 14, 2012. REUTERS/John Kolesidis