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Debt-ridden Greece gets stern warning

Athens - The International Monetary Fund (IMF) warned Greece on Wednesday it must redouble reform efforts to avoid derailing its fiscal programme, which is key to dealing with a huge debt mountain.
 
The sternest IMF warning since a €110bn European Union/IMF bailout a year ago pulled the troubled eurozone member back from the brink of bankruptcy was delivered as European officials raised the possibility of a Greek debt restructuring.

"The view that seems to be taking hold is that the government programme is not working," the IMF’s chief of mission to Greece, Poul Thomsen, told an economic conference in Athens.

"The programme will not remain on track without a determined reinvigoration of structural reforms in the coming months. Unless we see this invigoration, I think the programme will run off track," he added.
 
A deep recession and persistent tax evasion are threatening fiscal targets, while tension in ruling party ranks is hampering Greece's reform efforts, prompting market talk that debt restructuring is unavoidable. Europe's top financial officials broke a taboo on Tuesday and acknowledged for the first time that Greece may have to restructure its debt.

Some Greek officials have backed the idea of a "soft" restructuring, for example by extending repayments, but Prime Minister George Papandreou said late on Tuesday this would do more harm than good and pledged to redouble efforts.

"We, the Greek government, European institutions, the other eurozone countries, all continue to believe that the costs far outweigh any potential benefits," he said.
 
Papandreou rode a wave of public anger at scandals to a landslide election victory in 2009. But 18 months of tough austerity measures have cut his party’s popularity to about 30% slightly above the conservative opposition, polls show.
 
Dissenting voices from within his party have become bolder and there is little hope for broader political consensus in a country where coalition governments have historically failed.

Seeking consensus
 
International lenders said this week that getting all parties on board, as was the case in Portugal before securing a bailout, should be a condition for any further help to Greece.
 
But the main conservative opposition New Democracy party, which voted against the bailout in parliament, has consistently refused to back the government. Smaller leftist parties also vehemently oppose the deal.

"We disagreed with the programme because we didn’t think it could resolve the country's problems. Unfortunately, our doubts were well founded. The collapse of public revenues is proof of the plan’s ineffectiveness," said New Democracy economy expert Notis Mitarachi.
 
Finance Minister George Papaconstantinou said he would invite New Democracy to discuss ways out of the crisis.
 
"This does not only concern the government, it concerns the whole society," he said. "If we are to make it, we must do it together."
 
Papaconstantinou vowed to continue fiscal policies, as restructuring offered no magic solution to Greece’s problems and, for the first time, raised the possibility of dismissals in the wider public sector - so far a Greek political taboo.

"We can't go forward without considering that when public organisations shut down, shrink or merge there might also be dismissals," he said.
 
Street protests on an almost daily basis are piling pressure on the government. About 80% of Greeks said in a recent poll they disagreed with its handling of the crisis.

Thomsen said improving tax administration was behind schedule and remained a key target in order to avoid burdening the public with more wage cuts or tax hikes.
 
Papandreou vowed a "full fledged attack on tax evasion", saying it not only hurt growth but also caused social injustice and public belief in lack of fairness.
 
Greece has made some progress in the first year of the plan but cut its deficit only to 10.5% of GDP in 2010, more than two percentage points over an initial target. Without invigorated reforms, it will miss this year’s 7.6% target and be unable to bring it much below 10%, Thomsen said.
 
In his first public comments since EU and IMF senior officials started an inspection visit to Greece last week, he said it was not clear if Greece would be able to return to bond markets next year as planned. On a more positive note he said the economy was becoming more competitive.
 
Inspectors are still waiting for Greece to fill gaps in its proposed budget fiscal and privatisation plans - which are key to releasing the next tranche of aid - and will continue talks this week, sources have said.

On Wednesday, Greece announced a host of privatisation advisers for state companies and other assets, trying to gain ground on a key policy running behind target.
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