ATHENS, Greece - Officials of the European Union (EU) and the International Monetary Fund (IMF) are expected to deliver their verdict this week on Greece's faltering drive to bring its budget deficit under control. However, the Greek populace has warned that its patience is wearing thin.

Last year, the country got a 110 billion euro ($157.5 billion) rescue package from the EU and IMF, but since then it has struggled to meet its deficit-reduction targets, heightening the risk of a default on its 327 billion euro debt - equivalent to 150 percent of economic output.

A European Central Bank board member, Lorenzo Bini Smaghi, has issued a warning against default and told the Financial Times that it was a "fairy tale" to think that Greece's debts could be restructured in an orderly way. "If you look at financial markets, every time there is mention of a word like 'restructuring' or 'soft restructuring' they go crazy - which proves that this could not happen in an orderly way, in this environment at least," he said.

He added: "If Greece defaulted, the Greek banking system would collapse. It would then need a huge recapitalization - but where would the money come from?"

He said Greece could instead reduce its debt by selling assets and changing its tax and expenditure systems. "If you look at the balance sheet of Greece, it is not insolvent."

But the country's Prime Minister George Papandreou has failed to win opposition backing to adopt fresh austerity steps, more economic reforms and faster sales of state assets, as demanded by the EU and IMF.

Tens of thousands of protesters packed a central Athens square on Sunday to denounce the nation's entire ruling class and vent their anger at the IMF and its demands for yet more belt-tightening.

Black-hooded youths have been battling police since the austerity drive began last year, but the demonstrators who took over Syntagma Square, in front of parliament, were families, from children to the elderly, who had no class war to wage.

They booed, whistled and chanted "Thieves! Thieves!" as they pointed at the parliament building.

"The IMF should get out. There are other solutions without them," said Ifigenia Argyrou, an insurance consultant.

Police estimate that Sunday's crowd numbered 30,000, although the protesters say the authorities consistently underestimate their numbers.

Papandreou had been due to rally his PASOK party on Monday behind yet deeper austerity measures to win new international aid. However, the party cancelled the executive council meeting on Sunday without offering a detailed explanation.

Under last year's bailout plan, Greece was supposed to resume borrowing on financial markets next year, but that now seems increasingly unlikely, so the EU is preparing a new aid plan that would meet Greece's funding requirements in 2012 and 2013.

In return, the EU wants Athens to impose yet more austerity and reforms, including privatizations. Officials are checking the country's fiscal progress before approving a 12 billion euro aid tranche - the fifth under the current bailout - and possibly the new funding the country needs to avoid default.

The German weekly magazine Der Spiegel fanned fears over the weekend that Greece might not get the money, saying it might have missed all the fiscal targets set by its lenders.

Both Greece and the IMF denied the report, while the Finance Minister George Papaconstantinou was upbeat on the budget negotiations. "We expect that they will conclude successfully in the next few days," he said in a statement.

Pressure continues to pile on the socialist government, with the EU Commission's top economics official, Olli Rehn, saying time is running out for Greece to secure political agreement on an economic-adjustment program. With the team of EU and IMF officials in Athens expected to complete its review of Greek finances soon, Papandreou also needs to prevent fatigue from spreading to his own party as its popularity declines.

Reuters

(China Daily 05/31/2011 page14)