Exasperated lenders get blunt with Greece

The Fat Lady is on Stage

By Dina Kyriakidou

The International Monetary Fund's mission chief for Greece, Poul Thomsen, walked grim-faced into his first meeting with newly elected Prime Minister Antonis Samaras on July 5 wearing a black tie looking as if he was going to a funeral.

Whether he was making a point or not, the first meet-and-greet visit by Greece's exasperated international lenders with the new government was blunt, both sides told Reuters.

"Talking to them was like going to a doctor, who is looking over your tests shaking his head, and you're wondering if you are going to live or die," a senior Greek government official told Reuters, on condition of anonymity, after the visit.

Now, the same Greek officials are preparing for a new and crucial round of talks starting next week.

For three days earlier this month, senior inspectors from the troika of the International Monetary Fund, European Commission and European Central Bank rushed in and out of ministers' offices with their heads down, clutching files and avoiding reporters.

Sources from both sides said the meetings reviewed a track record of two years of broken promises to international lenders, who have pledged a total 240 billion euros ($294 billion) to pull the euro zone member back from the brink of bankruptcy.

The coalition government, which was cobbled together in June after two national elections failed to produce a clear winner, is racing against the clock to come up with cuts and reforms before the troika returns for a formal inspection to decide whether to grant another loan installment in September.

"As we suspected, they have fallen quite badly behind due to the election campaign and they are trying very hard to put the train back on track. The troika's main task next week is to see how we can get restarted," said a troika official who did not want to be named.

ANGRY AND FED UP

The first visit did not try to resolve specific problems but set a new tone for the relationship between Greece and its partners, making clear there was no time to waste on diplomatic niceties, and not much trust in the bank.

"They were clear and direct - as long as we produce results they will continue to support us, otherwise they will not," said a minister whose predecessor had fallen behind targets.

At another ministry, the message was equally no-nonsense, an aide said: "They were angry but mostly fed up. They said Greece would not get any money unless it showed some progress."

Among a long list of failures, Athens has not completed any substantial privatizations and is behind on tax reform, restructuring the public sector and properly opening up markets and professions. Poor tax revenues mean it will likely miss a 2012 deficit target of 7.3 percent of GDP. [ID:nL6E8I5A7A]

Greece blames its failings on a deeper than expected recession and wants two more years to catch up. The troika says half-hearted reforms are to blame for holding the economy back. The lenders are demanding extra cuts to the dismay of an austerity-hit public, which has often taken to the streets.

Samaras, initially a fervent opponent of the first bailout deal, has said he accepts the targets of the second plan but wants to change some policies in view of Greece's worst recession in decades, estimated at close to a 7 percent contraction this year.

The troika chiefs made clear to Greek officials that they should not raise the issue of renegotiating the 130 billion euro bailout plan keeping the country afloat at a July 9 meeting of euro zone financeministers and had to prove their credibility first.

DON'T RENEGOTIATE

This was a difficult issue for the new government to handle - renegotiating the bailout was not just Samaras's pre-election pledge but also the foundation of his coalition with the socialist and leftist parties.

"They didn't exactly order us not to renegotiate but they strongly advised that it would be a good idea not to raise the issue now, before the new government shows it is serious about catching up," said a Greek government official, who declined to be named.

Finance Minister Yannis Stournaras, a technocrat who took over the hot seat after Samaras' first choice fell ill, was hastily sworn in by black-robed priests an hour before his first meeting with the troika.

A respected economist, he was no stranger to the lenders who had sought his feedback in the past as head of the prestigious IOBE think tank.

Stournaras took the troika message seriously and avoided any mention of renegotiating the bailout when he attended his first Eurogroup meeting, a move the lenders welcomed.

"He understands the problems and is serious but he is alone," the troika official told Reuters.

The government is now scrambling to catch up. At the top of its list is a pledge to come up with an additional 11.7 billion euros worth of cuts for 2013-14, a task Greece was initially slated to finish in June.

Just days before the troika arrives, it had found around 8 billion euros of those cuts and was still looking for the rest, a Greek official said. Part of the problem was that ministers asked to come up with savings did not produce enough cuts and were sent back to the drawing table.

Susbtantial as those cuts are, to the lenders, they are just the tip of the iceberg - resistance to reform from ministry workers and tax officers, unionists and industries used to easy profit has long been at the heart of Greece's woes.

"The delays are now putting more pressure on the second half of the year," the troika official said. "It's a question of political will."