UPDATE 1-EU's Rehn says concerned about pace of reforms in Greece

Thu Jun 19, 2014 11:15am EDT

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LUXEMBOURG, June 19 (Reuters) - Greece must step up reforms, the EU's top economic official said on Thursday, urging the twice-bailed-out euro zone country with a debt nearly three times the size of the EU limit to return to "a credible path".

After nearly crashing out of the euro in 2012, Greece's economic fortunes have revived sharply in recent months. The country's six-year recession is predicted to end this year, and it posted a budget surplus before interest payments last year, making it eligible for further debt relief from its partners.

There have, however, been some concerns that the reform drive could slow following strong gains by anti-austerity parties in European elections in May.

"I'm concerned about the slowing down of the process of reforms in Greece," EU economic and monetary affairs Olli Rehn said before a meeting of euro zone finance ministers in Luxembourg.

"This will be discussed today and it's important that Greece be able to come back to the path of serious economic reforms."

Greece needs to push through pension and other reforms to be eligible for the final aid payments under its EU/IMF bailout, which expires this year, and to position itself ahead of debt relief talks scheduled for later this year.

Rehn did not spell out his concerns or specify any specific reform he would be worried about. He said he trusted Greece would "return to a credible path of economic reform shortly", even if there could be some delays in meeting a number of benchmarks.

German finance minister Wolfgang Schaeuble expressed no such concerns about Greece when he arrived at the same meeting.

"Greece is doing significantly better in terms of finances and growth than we expected when we agreed the second (bailout) programme two years ago," Schaeuble told reporters.

"One has to be a little understanding that Greece constantly has to take decisions that are difficult to implement, including internally," he added, saying that Greece would be successful if it continued on the path that it has taken over the past years.

Greece has enjoyed an abrupt turnaround in investor sentiment as it steadies its finances and targets a return to economic growth this year.

Athens is preparing to issue a small-sized, medium-term bond in the coming weeks, following its successful return to debt markets this year after a four-year exile, a senior finance ministry official told Reuters on Tuesday.

The IMF estimates Greece faces a funding gap of 12.6 billion euros starting in May 2015, though Athens believes any gap can be covered through measures like new bond issues and leftover bank bailout funds.

"(The situation in) Greece is not ideal, but Greece deserves respect and support for its success," Schaeuble said. (Reporting by Ingrid Melander and Annika Breidthardt; Editing by Catherine Evans)

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