EU's Olli Rehn Weighs In on Greek Aid Saga

Olli Rehn
JOHN THYS | AFP | Getty Images
Olli Rehn

Greece's latest tranche of aid could be made in separate instalments, European Commission Vice-President Olli Rehn said on Friday,keeping the pressure on the country to meet the bailout demands of its international lenders.

The country is battling through its sixth year of recession,and the latest instalment is one of the last big cash injections it stands to get before its 240-billion-euro ($311 billion) bailout expires at the end of 2014.

Now, Greece is waiting to learn whether its failure to meet a key deadline for public sector reforms could jeopardize further financial aid. The country was supposed to transfer or dismiss 12,500 state workers in June, but is yet to do so. The "troika" of lenders - the European Union, European Central bank and International Monetary Fund (IMF) -have threatened to freeze further aid unless Greece makes the reforms by Monday, when euro zone finance ministers will meet to discuss the matter.

Speaking at a seminar in his hometown of Mikkeli in Finland, Rehn said that Greece's funding was conditional on reforms continuing, and could be paid in tranches.

"It is possible, but not certain. It all depends on whether Greece can meet all requirements that they are committed to… Talks are continuing and they will continue as long as needed," Rehn said, according to a Reuters report.

(Read More: From Developed Back to Emerging: Greece's Full Circle)

European officials suggested earlier this week that they might be unwilling to give Greece more time to meet its reform goals. It has already been accused of delaying unpopular cuts and of reversing others, such as redundancies atthe state TV broadcaster ERT.

In addition, a senior eurozone official told Reuters that lenders may freeze emergency aid to Greece for three months and the German Foreign Minister Guido Westerwelle ruled out granting a second round of debt relief.

Rehn's comments on Friday supported the view of one analyst that Greece will still receive its latest loan, but it will be released in stages.

"I could perhaps foresee a compromise from these talks [on Monday] with the Troika, where the Troika agrees to release this aid in smaller tranches, so it keeps up the pressure on the Greek government to keep on implementing reforms," Rabobank's Richard McGuire told CNBC, prior to Rehn's speech.

Greece has sovereign bonds worth 2.2 billion euros which will need refinancing on August 20. Nonetheless, McGuire said Greece would not face a funding gap if it does not receive its next 8.1 billion euro ($10.5 billion) aid package.

(Read more: Greece Minister: Failure to Meet Bailout Terms Not Our Fault)

"It would be uncomfortable for Greece to find itself in that situation, but not impossible to deal with. Greece could issue some T-bills to give it some temporary respite. The key message is that Greece won't be allowed to default by accident over something like this," he said.

When Greece was granted a bailout, it pledged to combat its budget deficit and government debt through a combination of tax increases,privatizations and government cutbacks. In particular, it agreed to implement far-reaching cuts to its bloated public sector, getting rid of a total of 150,000 jobs.