November 29, 2016 / 1:16 PM / a year ago

UPDATE 1-Failure to conclude bailout review main risk for Greek economy- cenbanker

(Adds Dijsselbloem, government spokesman)

By Lefteris Papadimas and Francesco Guarascio

ATHENS, Nov 29 (Reuters) - Greece can meet its fiscal targets next year, the head of the country’s central bank said on Tuesday as he warned that the biggest risk the economy faced would be a failure to conclude the latest bailout review.

Athens and its official creditors are at odds over the country’s fiscal targets as well as labour and energy reforms that are part of Greece’s second bailout review.

Meanwhile, a rift between the European Union and the International Monetary Fund over Greece’s medium-term primary surplus targets has also clouded Greek hopes for a swift conclusion of the review.

“Despite the positive projections ... serious risks remain,” Yannis Stournaras told a conference in Athens. “The main risk would be the eventuality of failing to reach agreement on the second bailout review and any delays in implementing the programme or backtracking.”

Greece’s budget aims for a 2017 primary surplus - which excludes debt servicing costs - of 2 percent of economic output, slightly higher than the 1.75 percent bailout target.

In 2018, the bailout terms demand the surplus increase to 3.5 percent of output. Athens says it cannot maintain a surplus at such levels beyond 2018.

Athens hopes to reach an initial deal with its lenders on reforms this week and conclude the review by the end of the year. A Eurogroup meeting of euro zone finance ministers on Dec. 5 will discuss Greece’s progress and debt relief measures.

A second Eurogroup meeting may take place later next month, Greek and EU officials have said. Greece’s medium-term fiscal targets and how long it can sustain them will also be on the agenda.

Greece’s economy expanded for the second quarter in a row in July-September, statistics service data showed on Tuesday, boding well for a stronger recovery next year after a protracted recession.

“NEED TO BE REALISTIC”

Stournaras said lowering Greece’s primary surplus target to 2 percent of economic output from 3.5 percent after 2018 when its financial aid programme ends would help boost growth.

On Monday, Finance Minister Euclid Tsakalotos suggested the target be reduced to 2.5 percent of GDP. Athens would then be able to offer tax relief for businesses to boost competitiveness.

The IMF says the bailout target of 3.5 percent of GDP is unrealistic without debt relief and extra austerity measures.

European officials have said the target is feasible. But on Tuesday, the chair of the Eurogroup of euro zone finance ministers Jeroen Dijsselbloem said European lenders “need to be realistic” over Greek fiscal targets after 2018.

Dijsselbloem told the European Parliament’s economic affairs committee that the IMF had a point when it says “running a primary surplus of 3.5 percent for a very long time is a huge thing to ask”.

Greece’s leftist-led government signed up to a new bailout and more austerity in July last year, despite pre-election pledges to ease belt-tigthening after seven years of crisis.

Greece says it cannot accept more austerity after 2018 and wants to be included in the European Central Bank’s quantitative easing programme in the first quarter of 2017 to regain market access by the end of that year. [nS8N18J009

“Greece cannot stand any more austerity after 2018,” government spokesman Dimitris Tzanakopoulos told reporters. (Additional reporting by George Georgiopoulos, Renee Maltezou, Angeliki Koutantou; Editing by Richard Lough)

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