July 12, 2017 / 4:26 PM / a month ago

EU says Greece public finances back in order, closer to market return

European Economic and Financial Affairs Commissioner Pierre Moscovici holds a news conference at the EU Commission headquarters in Brussels, Belgium, July 12, 2017.Francois Lenoir

BRUSSELS (Reuters) - Greece's fiscal position has improved and the European Union should end disciplinary procedures against it over its excessive deficit, the EU commission said on Wednesday, paving the way for the country to return to international bond markets.

EU fiscal rules oblige member states to keep their budget deficits below 3 percent of their economic output or face sanctions that could entail hefty fines, although so far no country has received a financial penalty.

Greece recorded a 0.7 percent surplus last year and is expected to have a deficit of only 1.2 percent in 2017.

"Our recommendation to close the excessive deficit procedure for Greece is another positive signal of financial stability and economic recovery in the country," EU Commission Vice President Valdis Dombrovskis said in a statement.

Ending the procedure - a step that must still be confirmed by EU states - would further reduce the pressure on Athens after euro zone creditors unblocked new loans to it worth 8.5 billion euros ($9.6 billion) last week as part of its 86 billion euro bailout programme.

Greek Prime Minister Alexis Tsipras welcomed the commission's recommendation and said the economy was "steadily returning to European normality," according to a statement released by his office on Wednesday.

"The government will continue focusing on exiting once and for all the bailout programme in August 2018," he said.

Ending the disciplinary procedure, which was widely expected, should help Greece in issuing new bonds in the coming weeks or months. With the exception of two bonds in 2014, Athens has been absent from the markets since the start of the euro zone debt crisis in 2009.

The EU's economics commissioner, Pierre Moscovici, said the prospect of Greece borrowing in the market again was becoming "more credible" and said it had become a "more and more reliable country".

The Greek economy is expected to grow 2.1 percent this year, above the euro zone average, according to commission forecasts, although its unemployment rate remains the highest in the EU at 21.7 percent in April.

Returning to the markets would help Greece smoothly end its latest bailout programme, the third since 2010, which is due to end in August 2018. Euro zone creditors are encouraging Greece to test the markets before the conclusion of the financial aid programme.

Investors and bankers told Reuters on Tuesday that Greece could return to markets in the next few weeks.

As the bloc's economy is firmly on a recovery path, only France, Spain and Britain remain under the fiscal disciplinary procedure for their excessive deficit.

The French government has reassured Brussels of its intention to bring its deficit below 3 percent of output from 3.4 percent last year.

Reporting by Francesco Guarascio and Robert-Jan Bartunek in Brussels; additional reporting by Michele Kambas and Renee Maltezou in Athens; Editing by Hugh Lawson

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