BRUSSELS — The European Union on Thursday recommended approval of $11.6 billion in new loans for Greece, calling the government's efforts to cut spending "impressive."
Of that, $8.4 billion is to come from the EU's 16 euro zone countries, with the rest coming from the International Monetary Fund. Payout of the funds needs approval from euro zone governments.
In a report on Greece's commitment to economic reforms and austerity, the European Commission gave a thumbs-up to Greece's efforts to cut spending and raise new tax revenue, saying they merited the release of the loans.
"Greece has managed impressive budgetary consolidation during the first half of 2010 and has achieved swift progress with major structural reforms," said Monetary Affairs Commissioner Olli Rehn.
He said the country's deficit has fallen by 46 percent through the first half of 2010, a reduction that has been "faster than planned." Public spending has dropped 17 percent compared with that of the first half of 2009.
Rehn cautioned that "despite significant progress … challenges and risks remain. The main immediate challenge is to safeguard adequate liquidity and financial stability of the banking sector."
At the same time, he said, the structural reforms need "to be pressed ahead to unleash the huge potential for raising growth."
Rehn said he expects the finance ministers of the 16-nation euro zone to approve new lending at a meeting Sept. 7.
The EU and the IMF agreed in the spring to a three-year rescue deal worth $141.6 billion. Greece has already received $25.75 billion, of which $20 billion came from its EU partners and the remainder from the IMF.
On Aug. 5, officials on a joint EU-IMF mission to Athens said Greece has made progress in cleaning up its finances. Greece's excessive debt triggered a financial crisis this year that eroded confidence in the euro.
The European Commission said that in the first half of 2010, not only did the Greek deficit decline, but cash spending also fell by 16.9 percent, compared with spending in the first half of 2009, reflecting cuts in public sector wages and capital expenditure.
"Progress with pension and public administration reform has been made ahead of schedule," the EU added.