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Greece reins in budget deficit as recovery takes hold

Brussels - Greece’s budget is back in line with euro-area standards, bolstering the nation that received its latest round of rescue aid earlier this week as it mulls its first bond sale since 2014.

The European Commission, the EU’s executive arm, announced that it will recommend the removal of its so-called excessive deficit procedure for Greece, a step taken when a member state’s budgetary shortfall gets too big, according to an emailed statement on Wednesday.

While largely symbolic, the decision marks an important step for Greece, which has been relying on international bailouts to stay afloat since 2010 as it seeks to return to normality and regain investors’ confidence.

"Our recommendation to close the excessive deficit procedure for Greece is another positive signal of financial stability and economic recovery in the country,"  Valdis Dombrovskis, the European Union (EU) commissioner in charge of financial-services policy, said in the statement. "

I invite Greece to build on its achievements and continue to strengthen confidence in its economy, which is important for Greece to prepare its return to the financial markets."

The recommendation, which has to be approved by EU governments, has no practical implications as Greece’s fiscal targets are dictated by its bailout program, which prevails over EU rules. But the official recognition that Athens has gotten its finances in order and is no longer in breach of EU rules adds to a series of positive news surrounding the country and its bailout.

Recovery milestone

It also marks a milestone for the EU: if Greece exits the procedure, only three countries would remain under the so-called corrective arm - France, Spain and the UK - down from 24 countries during the financial crisis in 2011.

EU rules stipulate that countries are supposed to limit budget deficits to 3% of gross domestic product and keep their debt ratios below 60%. Greece’s deficit has been reduced from a peak of 15.1% of gross domestic product in 2009 to a surplus of 0.7% of GDP in 2016.

Euro-area finance ministers agreed last month that Greece had undertaken enough economic reforms to get €8.5bn in additional financial aid under its €86bn bailout, while offering more clarity on what future debt relief for the crisis-ridden state could entail.

Under the terms of its bailout, the country must sustain a primary surplus - which excludes interest payments - of 3.5% of GDP until 2022, and stabilize around 2% in the medium term.

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