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Greece gets positive review but euro zone withholds part of new loan payment

President of Eurogroup Jeroen Dijsselbloem (L) talks with Greek Finance Minister Euclid Tsakalotos (R) next to a Greek advisor during an Eurogroup meeting in Luxembourg.
John Thys | AFP | Getty Images

Euro zone finance ministers gave Greece a positive review of its reforms on Monday but divided up the latest tranche of aid to Athens, disbursing a 1.1 billion euro loan but postponing its decision on a further 1.7 billion payout to later in October.

As part of an 86 billion euro bailout program agreed last year with other euro zone members, the third such package since 2010, Greece needs to complete a wide range of reforms on pensions and labor markets, carry out privatizations and tackle other sensitive issues.

Euro zone countries have so far disbursed 33.5 billion euros under the third bailout and were expected to release a further tranche of 2.8 billion euros to conclude the first review of the aid program.

But in a meeting in Luxembourg on Monday, euro zone finance ministers decided to split the payment in two parts and gave their political green light only to a 1.1 billion euros payment.

The release of the remaining 1.7 billion euros will depend on data on arrears payments for September that the Greek authorities are in the process of collecting.

"It takes time," to collect this data, the chairman of the Eurogroup of euro zone finance ministers Jeroen Dijsselbloem told a news conference after the meeting.

But he added that "we are fully confident that it will be fine."

The actual disbursement of the 1.1 billion euro sub-tranche will be finalized in two weeks, on Oct. 24 or 25, when the board of directors of the euro zone bailout fund, the European Stability Mechanism, is to meet.

"We could do it earlier but there is no need to do it earlier," ESM head Klaus Regling told the news conference.

At the meeting, the ESM should also decide on the disbursement of the remaining 1.7 billion euros after data on arrears is available, Dijsselbloem said.

"The 1.7 billion euro tranche will be disbursed at the next ESM meeting, when official data for September will confirm that we are well above our target (on state arrears)," the Greek finance ministry said in a statement.

Next steps

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To get the money, Greece was supposed to take 15 reform actions, called milestones, the last of which were completed over the weekend. The institutions assessing the reforms are the European Commission, the European Central Bank, the euro zone bailout fund ESM and the International Monetary Fund.

"All remaining milestones have been completed," European Commissioner for Economic and Financial Affairs Pierre Moscovici told reporters.

During the meeting some countries, especially Germany, argued Greece still needed some more work to complete the milestones, mostly regarding making a privatization fund fully operational, officials said.

But a compromise was reached on pushing back full implementation of the milestones to the second review of the program, the next stage of the reform process.

Moscovici said that a team of European Commission experts will go to Athens in the second half of October to start talks on the second review, the completion of which is a condition for the start of talks on the scope of Greek debt relief.

Greek economy has undergone strong, difficult reforms: Moscovici

The second review will focus on the reform of the Greek labor market, EU officials said.

If Athens completes all the actions from the second reform review by the end of the year, it could begin negotiations on the terms of medium- to long-term debt relief from the euro zone - an important political victory for the government.

Euro zone finance ministers agreed in May to start discussing the scope of such debt relief, to be delivered only in 2018, once a new debt sustainability analysis for Greece is prepared by the IMF in December.

Euro zone ministers, who are now the main creditors of Greece after the country restructured privately-owned debt in 2012, agreed in May that the guiding principle for debt relief, once all reforms are delivered, would be to cap Greece's gross financing needs at 15 percent of GDP in the medium term and at below 20 percent in the long run.

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