Greece's Lenders Warn of 'Very Large' Risks to Bailout

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Political resistance andpotential court challenges are among "very large" risks toreforms required for Greece's bailout program, the country'sEuropean lenders said on Monday.

The long-awaited report from the European Commission and theEuropean Central Bank details the findings of the "troika" ofthe 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 nexttranche of aid under the bailout, but warned Athens still riskedfalling short on its commitments.

"The key risks concern the overall policy implementation,given that the coalition supporting the government appearsfragile and some components of the program face politicalresistance, despite the determination of the government," thereport said.

"Important budgetary measures are likely to be challenged incourts, which could lead to the need to fill a fiscal gapemerging as a consequence."

Greece's conservative-led government has promised Athenswill restore its damaged credibility but the coalition has facedattacks both from within and outside on its plan to push througha new round of austerity.

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

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

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

Criticising influential business lobbies, it said revivingthe economy would require "breaking the resistance (to reform)of vested interests and the prevailing rent-seeking mentality ofpowerful pressure groups".

The report acknowledged that privatization proceeds had beendisappointing so far but that the program had gained somemomentum since September. It forecast revenue of 8.5 billioneuros by 2016 from the asset sales, roughly a billion lower thanAthens' own estimates in a mid-term fiscal plan.

"Doubts on the effectiveness of the governance of theprivatisation process however continue to persist," the reportsaid.

The euro zone last week agreed to disburse aid to Athensafter declaring a bond buyback scheme a success, cutting thenational debt burden and removing the spectre of a Greekbankruptcy and euro zone exit.