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The Greek government is on course to significantly exceed its creditor budget targets, the EU’s economics chief has said, as he warned Athens’ stuttering economic recovery was a risk of derailing from long-running delays over its bailout.
Addressing MEPs in Brussels on Tuesday, Pierre Moscovici said the Syriza-led government would exceed a 3 per cent primary budget surplus for 2016 when official figures are released later this month.
This key measure of the country’s public finances – which strips out debt repayments – has become a lightning rod in a tussle between Greece’s creditors in the EU and International Monetary Fund.
The EU wants Greece to maintain a 3 per cent surplus for upto a decade after 2018 as part of its €86bn bailout. The IMF has pushed for this to be reduced to alleviate the austerity burden on the economy after six years of bailouts.
Mr Moscovici praised the Greek government’s attempts to cut back spending and raise taxes to boost its public finances. He said the surplus would likely fall to 1.75 per cent in 2017 before overshooting its target at 3.5 per cent in 2018.
But he warned Greece’s fragile economic momentum was at risk of reversing gains made last year if the bailout continues to stall.
“All partners in Greece must now end the uncertainty and create a virtuous recovery”, said the former French cabinet minister.
As part of its latest round of bailout wrangling, creditors are divided over the policy measures Athens must undertake to unlock €6bn in bailout cash it needs to avoid a summer default.
Greek ministers will hold crunch talks with their bailout counterparts in Brussels today, in a bid to strike a deal on pension and labour market reforms needed to unlock further financial aid.
Uncertainty over the bailout has led to a resumption in bank deposit flight at the start of the year, with Greeks pulling €2bn out of the banking system in January and February.
The Greek government meanwhile is thought to have been stockpiling cash in an attempt to ensure it can honour the July debt payments to the IMF, ECB and private creditors.
Syriza’s budget surplus swelled to hit €4.4bn last year, far exceeding a €2bn target set by creditors. The surplus has been driven by cutbacks in government expenditure and higher tax collection — both developments which are likely to set back the faltering recovery, warn economists.
Greece is already feeling the pain from a stalled injection in bailout cash. Unemployment has remained stuck at 23 per cent – the highest in the eurozone and defying a broader recovery across the bloc – while the country’s manufacturing sector has shrunk for seven straight months.
The economy contracted by 1.2 per cent in the fourth quarter of 2016 – the worst performance since the country was bought to the brink of default in the summer of 2015.
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