European and IMF inspectors scrutinising Greece's budget and economic reform progress are finding shortcomings in efforts to pull the euro zone member out of a deep debt crisis, officials said on Thursday.
The senior inspectors are meeting ministers in Athens this week to assess whether Greece should get a key, fifth tranche of a 110 billion euro ($153.7 billion) bailout that saved it from bankruptcy last year and whether its debt burden is sustainable.
"They are forming an opinion that there are difficulties," said one senior government official who requested anonymity. "They are concerned there is a high risk revenue targets will not be met and are pressing for more spending cuts."
At stake is a 12 billion euro tranche of aid due next month and key to paying 13.7 billion euros of immediate funding needs. Without it, Greece could effectively default.
Trapped between a rock and a hard place, the Socialist government has imposed tough austerity measures as prescribed by international lenders, only to see them stifle the economy and anger not only the public but senior ruling party members.
On Wednesday, striking labour unions brought much of Greece to a halt in protest at wage cuts and tax rises they say are deepening a recession and stoking unemployment, which hit a record 15.9 percent in February from 15.1 percent in January.
Prime Minister George Papandreou held two cabinet meetings this week to rally ministers after some complained of policy drift.
"He presented a very difficult situation and asked ministers to redouble and organise efforts," said an official with knowledge of the meetings. "There is concern that delays in EU decision-making will cost Greece dearly."
EU DEBATES RESCUE
Greece has acknowledged it may not be able to return to bond markets next year and investors fear a restructuring, imposing losses on private bondholders, is inevitable without more aid.
"Options being discussed include a lengthening of maturities or a new aid deal, perhaps with the European rescue fund (EFSF) buying Greek bonds," the official said. "This is a debate taking place outside Greece."
Media reports have suggested EU partners may demand that Greece pledge assets as collateral to obtain an additional 50-60 billion euros in funding, to cover the 27 billion euros in 2012 and 38 billion euros in 2013 that it was supposed to raise on capital markets under its EU/IMF programme.
The government and the IMF have denied such a deal is in the works.
"There are other, modern ways such as securitisation, which are better," Labour Minister Louka Katseli told Greek TV on Thursday when asked about new funding methods. "All our partners want Greece to exit the crisis, they are as worried as we are."
German Chancellor Angela Merkel and other senior euro zone policymakers say they will wait for the result of the EU/IMF mission before taking any decisions. The inspectors are also tasked with judging if Greece can handle debt projected to reach 347 billion euro debt in 2011, about 154 percent of GDP.
The government has seen its fiscal achievements undermined by recession — GDP is seen contracting by 3 percent this year — and rampant tax evasion, depressing revenue. An upward revision of the 2010 deficit has also made its task harder.
EU partners want to see more progress on the ambitious privatisation programme, which targets 50 billion euros in state utilities and property sales by 2015, and redoubled reform efforts before granting Greece further help.
Greek officials said the inspectors had pointed out specific areas of weakness, such as lagging revenues for social security funds, partly due to the recession and higher unemployment.
"For example, they focused on the social security fund deficit, estimated at 1.4-1.5 billion euros," the government official said. "We told them about 500 million of that would come from intensified checks on undeclared employment."
The EU and IMF mission chiefs will continue meetings with ministers this week and are expected to form an opinion by early next week when European finance ministers meet in Brussels.
