Greece's ability to avoid default hangs in the balance asinternational monitors prepare to assess whether Prime MinisterGeorge Papandreou can meet the conditions of rescue loans.

European Union and International Monetary Fund inspectors hold ateleconference today at 7 p.m. Athens time with Finance MinisterEvangelos Venizelos, to judge whether the government is eligiblefor an aid payment due next month and on track for a second rescuepackage approved by EU leaders July 21.

“We can't move along without real implementation of fiscalreforms and we are late,” Venizelos said at a conference in Athenstoday. “We must reach the end of December with a cash balanceresult that's within fiscal targets.”

Greece is struggling to prove to its partners it is doing enoughto receive a sixth tranche of loans to prevent default. AsPapandreou fights investor doubts and domestic protests, Europeanleaders are squabbling over the terms of the July agreement and theprospect that they will be forced to channel more money to keepGreece in the currency union. IMF and EU monitors suspended theirreview earlier this month after discovering an unexpected hole inthe budget.

Venizelos said yesterday some measures in the five-year 78billion-euro ($107 billion) medium-term budget plan adopted in Junemay need to be brought forward to meet targets, a week afterannouncing a property levy to help raise 2 billion euros.

'Smaller, Smarter State'
The EuropeanCommission isn't demanding more of Greece than was agreed to theinternational aid program for the country, economics spokesmanAmadeu Altafaj told reporters in Brussels. “The only thing that ison the table is full compliance with the agreed targets. No more,no less,” he said, adding that only after today's conference callwill the commission “be in a position to communicate further on thenext steps.”

Venizelos said state has to become “smaller and smarter” and thefocus on the 2012 budget will be on spending cuts. New taxes can'tbe “incessantly” imposed because of the inefficiency of the taxcollection system, he said.

Yesterday, German Chancellor Angela Merkel's party lost aregional election in Berlin, the last of seven state ballots thisyear that have seen the coalition parties punished amid voter angerover her handling of the debt crisis.

Yields Rise
Greece's 10-year yield rose 163basis points to 22.82 percent while two-year notes added 513 basispoints to 60.0 percent. The notes rose for the first week in twomonths last week as traders trimmed bets for a pending defaultafter the leaders of Germany and France signaled a commitment tokeeping Greece in the euro area. They had climbed above 80 percentfor the first time on Sept. 14 amid speculation the countrywouldn't be able to meet its obligations to investors.

Stocks and U.S. futures fell, sending the MSCI All-Country WorldIndex lower for the first time in five days, as the euro weakenedamid concern about Greece's debt. The MSCI All-Country World Indexdeclined 1 percent at 12:11 p.m. in London. The Stoxx Europe 600Index dropped 1.8 percent and futures on the Standard & Poor's500 Index sank 1.5 percent. The euro fell 0.9 percent and theDollar Index rose for a second day.

Papandreou will convene his Cabinet again after Venizelos's calltoday with the EU and IMF monitors. The finance minister will setout plans announced Sept. 6 to accelerate state asset sales and cutspending by placing civil servants in a “reserve” system andshutting down dozens of government agencies.

Main Goals
Greece's three main aims are tomeet targets for 2011 and 2012, create a primary surplus as soon aspossible and pursue structural reforms with vigor to shield thecountry, he said yesterday. The economy will shrink 5.5 percentthis year and also contract next year, he said today. The goal isstill to achieve a primary surplus of 3 billion euros next year, hesaid.

Venizelos is blaming a third year of a deepening recession forfailing to meet budget targets. The announcements this monthincluding the property levy are a bid to show Greece is seriousabout addressing its benefactors' concerns, key to getting the 159billion-euro package agreed to in July. That would supplement lastyear's 110 billion-euro package.

Impressive Consolidation
Additional measuresare needed to reduce the budget deficit to a sustainable level, BobTraa, the IMF's resident representative in Greece, said today. Headded that it was “appropriate and important” to underline that theIMF disagreed with the view that the program carried out by thegovernment has been unsuccessful to date. “Impressive fiscalconsolidation has happened,” he said.

Greece won't return to growth until 2013, with economic outputdeclining 2.5 percent next year, Traa said.

Venizelos on Sept. 17 dismissed talk of the country declaringbankruptcy and said Papandreou canceled his planned week-long U.S.visit to be prepared to take quick decisions this week, whenParliament votes on the July 21 package, which also gave Europe'srescue-fund expanded authority.

Papandreou had planned to meet officials including IMF ManagingDirector Christine Lagarde and U.S. Treasury Secretary Timothy F.Geithner on his trip to New York and Washington. His first meetingwas scheduled for New York yesterday. A separate meeting this monthbetween Lagarde and Venizelos is still planned, a Finance Ministryofficial said.

'Can't Pay'
Papandreou last week promised a“decisive battle” for budget cuts to persuade European governmentsand the IMF to release the 8 billion-euro loan installment.

Greece is now looking to the next meeting of euro-area financeministers, on Oct. 3, for a decision on the release of theinstallment. The loan would be disbursed by mid-October, enablingthe government to pay its bills through the end of the year.

Former IMF head Dominique Strauss-Kahn said that forcing Greeceto pay back its debts would unacceptably impoverish the country,and that everyone must be willing to accept losses on Greekdebt.

“They can't pay,” Strauss-Kahn said in interview yesterday withFrance's TF1 television. “The efforts of European leaders have beentoo little, or too late, or often both too little and toolate.”

Greece has the cash reserves to cover its needs for October,Deputy Finance Minister Filippos Sachinidis said on Sept. 12.

Cuts in Wages
Higher taxes and cuts in wagesand pensions in return for a 110 billion-euro package of loans fromthe EU and IMF in May 2010 have weighed on Papandreou's standingwith Greeks, with his Pasok party now trailing the opposition inpolls.

People with disabilities gathered outside the Finance Ministryin central Athens today to protest plans for the special propertytax and government plans to include them in the reserve plan forcivil servants. “The measures announced don't protect the weakergroups in society,” Yiannis Limdaios, a protester, told state-runNET TV.

Nine in 10 Greeks are dissatisfied with the government andopposition's handling of the crisis, according to a poll of 1,216Greeks by Public Issue for Kathimerini newspaper on Sept 11.

Opposition Leads
Opposition New Democracy'slead over Pasok is now four percentage points, with the pollshowing neither party would win an outright majority in parliament.The poll was conducted Sept. 2 to Sept. 7 and the margin of erroris 2.9 percentage points.

New Democracy leader Antonis Samaras yesterday repeated a callfor elections, promising Greeks he would renegotiate the terms ofthe financing package if his party wins a majority inparliament.

“The biggest weapon the country has right now is elections andclear solutions,” he said. New Democracy needs “the clear mandateof the people to renegotiate” the agreements.

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