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Greece’s slow bailout progress set to dominate Eurogroup talks

Brexit masking bigger European issues in Bratislava

Concerns that Greece is not making enough progress to meet the conditions of its third international bailout is heading the agenda of a meeting of euro zone finance ministers on Friday.

The Eurogroup, which is meeting in Bratislava, Slovakia, will decide whether Greece has been doing enough to meet the "the milestones agreed in its financial assistance program," the European Council said on its website.

The conditions of Greece's third 86 billion euro ($96.9 billion) bailout include a number of measures and reforms that the left-wing coalition government led by Alexis Tsipras has committed to implementing in order to address its current economic challenges.

Nicolas Koutsokostas/Corbis via Getty Images

If Greece is deemed to have done enough to meet those conditions, it will open the way for a further disbursement of money from a second tranche of aid. The tranche, the European Council noted, amounted to 10.3 billion euros; 7.5 billion euros of which was disbursed on 21 June 2016. Such aid typically goes on servicing Greece's debts.

So far, however, Greece has only completed two of its 15 reform "milestones" that are necessary for creditors to begin a second bailout review (the first of which was delayed and only completed in June) which could lead to debt relief measures.

The meeting today is set to start around 9 a.m. London time with Jeroen Dijsselbloem, the head of the Eurogroup, expected to make comment on meeting later today.

Follow our World Markets Live blog for the latest on the meeting

Uphill battle

Greece requested a third rescue program last summer when it was on the brink of bankruptcy and a potential exit from the euro zone, despite a referendum in which the majority of Greeks voted against more austerity measures.

A year on and Greece is facing an uphill struggle to meet the conditions of its latest bailout, having to implement far-reaching structural reforms of its pension and taxation system, labor market and the wider economy in order to boost its competitiveness and attract investment.

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There is uncertainty about Athens' ability to meet its bailout commitments and the souring the political atmosphere in Greece, where the ruling Syriza party is losing the public's approval.

"Greece's Syriza government is once again severely behind schedule, as it procrastinates over the implementation of 15 reform "milestones" (only two have been completed so far) necessary to secure 2.8 billion euros from euro zone creditors," Mujtaba Rahman, managing director of Europe at Eurasia Group said in a note earlier this week.

"Completion of the milestones, which should have happened around two months ago, is necessary to begin the bailout's second review. This contains numerous politically sensitive elements, not least reform to Greece's labor market. Germany in particular is annoyed at the lack of progress over Greece's new privatization fund – a key part of last year's deal to keep Greece in the Euro – where the supervisory board, let alone the management team, has not yet been appointed," Rahman added.

Don't mention debt relief

The issue of debt sustainability is also a hot topic with the International Monetary fund (IMF) – which participated in Greece's two earlier bailouts – saying that Greece's debt is unsustainable and lenders targets for Greece (such as achieving a primary budget surplus of 3.5 percent of GDP in 2018). The IMF has said it is still not ready to participate in the current bailout until there are significant reforms by Greece and that its debt is sustainable.

Back in May, the Eurogroup tried to appease the IMF by agreeing a set of debt relief measures for Greece, such as extending the maturities on Greece's loans and "smoothening the repayment profile" of loans. It said such debt relief would be offered in mid-2018, however, on Greece's successful implementation of its bailout conditions.

In the meantime, Greek government bonds are still excluded from the European Central Bank's quantitative easing program, meaning that its borrowing costs are still far higher than its euro zone neighbors and adding to its struggle to recover.

Eurasia Group's Rahman forecast that Greece would continue to struggle, especially as the governing Syriza party sees its popularity drop compared to its rival New Democracy. "Syriza's loss in popularity is causing the government to delay reform; the bailout's second review will now only be concluded late this year or more likely early next," Rahman said. "Syriza's bad behavior is convenient for creditors, postponing their need to come to an agreement over debt relief," he added.

Other talking points

The Eurogroup will also discuss how government spending reviews can help improve the quality of public finances in the euro area member states. "Such reviews may promote fiscal responsibility and changes in the structure of public spending to enhance economic growth," the Council said.

Euro zone ministers will also briefly talk about the upcoming assessment of the euro area's draft budgetary plans; Euro area member states have to submit their draft budgetary plans for the next year by 15 October for assessment by the European Commission and later discussion by the Eurogroup.

The meeting comes hot on the heels of the European Central Bank's decision on Thursday not to extend its current stimulus program, much to the disappointment of markets. Rather, ECB President Mario Draghi said he wanted to see euro zone governments do more to stimulate growth.

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