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Greece on track for 2018 primary surplus target: EU

By Jan Strupczewski and Francesco Guarascio

By Jan Strupczewski and Francesco Guarascio

BRUSSELS (Reuters) - Greece outperformed its fiscal targets last year and should meet fiscal goals this year, putting it on track for its primary surplus target in 2018, European Commission Vice President Valdis Dombrovskis said.

Achieving a budget surplus before debt servicing of 3.5 percent of economic output in 2018 is important because the euro zone may grant Athens further debt relief if Greece attains and keeps this level for several years.

"Greece has substantially outperformed on last year's fiscal targets, is going to meet this year's targets and we need to finalize the work on outstanding measures in 2018," Dombrovskis told reporters before a meeting of euro zone finance ministers.

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"We see that Greece is on track to reach its primarysurplus target of 3.5 percent of GDP in 2018 and we'll work out for further discussions on what is exactly the fiscal trajectory after 2018 and what potential measures or contingency mechanisms might be needed," he said.

Euro zone finance ministers want Greece to keep the 3.5 percent surplus over the medium term after 2018, but there is no agreement of what medium-term means, with views ranging from three to 10 years.

Greece says asking for any contingency measures to reach and keep the surplus at 3.5 percent is unjustified, because the set of reforms that lenders wanted from Greece was agreed in 2015 and the country was delivering on them as promised.

To make matters more complicated, the International Monetary Fund, which participated in the euro zone's previous two bailouts for Athens, but is so far only an observer in the current third one, says that forcing Greece to keep such a surplus for years is an invitation to failure.

It believes that the reforms that the euro zone has asked of Greece so far will only produce a surplus of 1.5 percent and that such a lower surplus would be better for economic growth, but it would entail substantial debt relief from the euro zone.

DEBT RELIEF

Germany, which faces elections in September, is strongly against any discussion of more debt relief before Greece reaches the bailout target.

The stand-off between Berlin and the IMF on how to deal with Greece has delayed the participation of the Fund in the bailout for 18 months and raised speculation that the euro zone may choose to go it alone in the end.

But Jeroen Dijsselbloem, chairman of euro zone finance ministers, told reporters on entering the meeting that the IMF was committed to take part.

"I spoke to (IMF Managing Director Christine) Lagarde quite recently and she reassured me that the IMF has still strong intentions to remain part of the program and to take that step and to participate to the program in full," Dijsselbloem said.

Last week, the German finance ministry said it still expected the IMF to participate in the bailout, rejecting a newspaper report that Berlin was preparing for a deal without the global lender. The latest Greek bailout, the third since 2010, started in mid-2015 and is due to end in mid-2018.

To make sure that Greece indeed reaches and keeps the 3.5 percent surplus target, some euro zone officials are considering asking Greece to legislate contingency measures, which would only kick in if the country misses its targets.

But there is no agreement on asking Athens for such a move.

The ministers are discussing Greece's progress in reforms and when the country might be able to complete the actions envisaged for this stage of the bailout.

Once Athens completes the reforms for this bailout stage, it could become eligible for the European Central Bank's government bond buying program, which would lower Greek bond yields and make it easier for the country to return to market financing.

The completion of the reforms, which in EU jargon is called the second review, would also pave the way for new loans to Greece, without which it may face default in the third quarter.

(Reporting by Jan Strupczewski and Waverly Colville; Editing by Tom Heneghan)