Economic reforms intended to pull Greece out of recession and help it resolve a sovereign debt crisis are broadly on track, despite some slippage, the European Commission said.
In a report from its June mission to Greece, the European Union's executive said Athens was making good progress on fiscal consolidation and macroeconomic developments were in line with the reform programme despite higher inflation.
Whilst this overall assessment is positive, with programme implementation being broadly on track, the interim review identified a number of pressure points and areas where further progress is needed, said the report released on the Commission's website.
The EU executive and the International Monetary Fund (IMF) granted Greece a 110 billion euro ($148 billion) bailout in exchange for a string of painful economic adjustments designed to rein in a ballooning budget deficit.
The ruling socialists are trying to implement reforms such as tax hikes and an increase in the pension age, despite strikes and other protests and against a backdrop of concerns that Greece's debt problems could spread to other countries on the euro zone periphery.
The Commission said Athens' efforts to meet the goal of cutting the budget deficit to 8.1 percent this year from 13.6 percent in 2009 were generally on track.
Fiscal consolidation is ongoing, broadly in line with plans. State revenue performed somewhat below programme targets, but state expenditure contracted beyond the target, it said.
However, Greece did not have full information on finances in some sectors, including healthcare, that were responsible for expenditure overruns in the past.
These concern, in particular, developments in the healthcare sector, where progress seems to be slow, it said.
Other fiscal developments outside central government, including on public enterprises, require a better reporting mechanism and need to be thoroughly scrutinized.
Greek inflation was higher than assumed in the reform programme. The Commission partly attributed that to a lack of competition and the prevalence of oligopolistic market structures that pass on higher taxes directly to consumers.
The Commission said that, with the Greek banking system affected by the recent downgrades of sovereign and bank debt, the government was considering injecting another tranche from its guarantee scheme.
For full report click on: http://ec.europa.eu/economy_finance/articles/financial_operations/pdf/2010-07-06-greece_interim_review_en.pdf
(Reporting by Marcin Grajewski, editing by Timothy Heritage, John Stonestreet)