09/19/2011 01:14 EDT | Updated 11/19/2011 05:12 EST

Greek foreign minister holds emergency call with creditors, under pressure to step up reforms

ATHENS, Greece - Greek authorities and international officials were due for more talks Tuesday on whether debt inspectors will return to Athens, a key issue that could affect whether the nation gets more bailout funds or defaults on its debts.

As global stocks fell on fears of a Greek default, Athens on Monday struggled to convince officials from the European Commission, the European Central Bank and the International Monetary Fund that the country could meet strict budget targets promised in return for the international cash lifeline.

After a Monday conference call involving Greece's finance minister ended without a decision on the inspectors, European Commission spokesman Amadeu Altafaj Tardio said another call was set for Tuesday evening.

"In the meantime, technical discussions are ongoing in Athens," he said.

A finance ministry statement said Monday's two-and-a-half hour discussion was "productive and substantive."

Following delays by the Socialist government to deliver on promised reforms, Greece's European eurozone partners and international creditors are stepping up pressure on Athens at the start of a crucial week in Europe's nearly two-year debt crisis.

When it became obvious earlier this month that there was a more than €2 billion ($2.75 billion) shortfall in the 2011 budget, creditors threatened to withhold the sixth installment of the rescue package agreed to in May 2010.

They also suspended a review of Greece's deficit-cutting and reform targets by senior inspectors from the IMF, the ECB and the Commission — collectively known as the "troika" — although a technical team remains in Athens.

That review must be completed before the troika can issue a recommendation on whether Athens should receive the €8 billion ($11 billion) sixth installment, without which the country will go bankrupt by mid-October.

Despite pledges by Greek Finance Minister Evangelos Venizelos, fears that Athens will default on its mountain of debt roiled markets Monday. Stocks were hammered in the United States — where the Dow Jones industrial average was down nearly 1 per cent after a late-day rally — and Asia as well as Europe.

Athens is struggling with a deepening recession that is eating away at the impact of its austerity measures while also causing unemployment to spike and public anger to grow.

Before the discussions, Venizelos said the government still seeks to generate €3 billion ($4.1 billion) more revenue next year than it spends, before counting the cost of interest on existing debts.

Greece's economy is expected to contract about 5.5 per cent this year and a further 2.5 per cent in 2012, according to new government and IMF estimates.

"The country cannot go forward without the true implementation of major structural reforms," Venizelos said at a conference south of Athens, adding that achieving the 2012 target was vital.

The government still must live up to its commitment to lower the 2011 budget deficit goal to 7.6 per cent of gross domestic product.

The Greek government has hurriedly announced an extra two-year property tax — payable through electricity bills to ensure its collection — to compensate for the shortfall.

But the news was greeted with a fierce outcry from a public already reeling from salary cuts and the recession. State electricity company trade unionists also threatened to refuse to collect the taxes.

Yiannis Panagopoulos, head of Greece's largest trade union, GSEE, said further revenue-boosting levies would be "unfair and imbalanced."

"Our country has recently been undergoing a weekend nightmare: every weekend there is the threat of bankruptcy, whispers of a coming bankruptcy, we hear again and again that everything is about to collapse," he said. "What our creditors are asking of the country is unthinkable ... a country is its people, and above all it is they that must be saved."

A communist labour union is holding a protest against the tax outside parliament Wednesday.

Venizelos said Sunday night that the backlash from ordinary Greeks has led to skepticism among Greece's creditors about whether the government would manage to raise the projected revenue.

While technical staff from the troika have been back in Athens for about a week, trying to figure out whether the new measures will be enough to meet the budget targets, senior debt inspectors have stayed away until progress is made.

IMF representative Bob Traa urged the government to speed up structural reforms and avoid further emergency taxes, arguing that Athens should give up its "taboo" of firing public servants.

"I have compared Greece to a Mercedes that can go 120 kph but is only going 40 because it has so much sludge in the engine," Traa told the conference.

He said Greece needed to speed up its reforms in tax collection and reduce the size of the overmanned public sector. Greece has plans to slash 150,000 public sector positions by 2015.

"If you can do it (staff cuts) up front, you get over it much more quickly," Traa told the AP. "Our experience is that ... if you do things gradually, that may induce the public getting very tired (of austerity measures)."


Gabriele Steinhauser in Brussels, Elena Becatoros and Nicholas Paphitis in Athens, and Theodora Tongas in Vouliagmeni contributed.