FACTBOX-Key political risks to watch in Greece

ATHENS Oct 1 (Reuters) - Greece has made progress in pushing through EU/IMF reforms and improving its finances but investors question whether it can sustain these efforts in the face of a bleak economic outlook and social discontent.

The debt-choked country is scrambling to cut spending further and boost lagging revenues to meet a tough year-end target to slash its deficit under a 110 billion euro ($148.1 billion) bailout which saved it from bankruptcy in May.

All eyes will be on the first draft of next year's budget, which will be published on Monday. The ruling Socialists are left with little wiggle room in what is expected to be a tough autumn during which they must also handle municipal elections.

Following are the key political risks ahead:

MEETING 2010 TARGETS

Athens is so far on track to meet its fiscal targets this year but risks remain on weaker-than-expected revenues, local government and health spending, its lenders said in approving the second tranche of the mammoth bailout in September.

In order to slash its budget deficit to 8.1 percent of GDP, Greece must offset weak tax revenue growth by keeping spending 4 billion euros below an original target.

What to watch:

- Whether Greece manages to rein in health, transport and local authorities spending.

- A nine-month central budget execution figure, expected by mid-October.

- How Greece will fare in the next EU/IMF review, which will take place in November and open the way for a third aid tranche if EU and IMF inspectors are satisfied with Athens's progress.

- Whether the government manages to get 500 million euros this year from a new tax settlement bill [ID:nLDE68Q1U6].

SUSTAINING THE EFFORTS IN THE MEDIUM, LONG-TERM

Analysts say the first draft of the 2011 budget, which the government will present to parliament on Monday, must show Greece can sustain efforts to put its finances back on track after front-loading much of the effort this year.

Some also say Greece will need to continue its consolidation efforts even after the 3-year bailout ends, pointing to the fact that debt is seen reaching 144 percent of GDP in 2013.

For calculations with a spreadsheet model showing the extent of Greece's challenge click on link.reuters.com/heb74p

What to watch:

- The first draft of the 2011 budget, on Oct.4, and the final draft, expected mid-November. Depending on progress on this year's fiscal efforts, there may be changes in the final text. The government will present mid-term projections together with the 2011 draft, Greek officials said.

- Any declarations by EU and IMF officials on what will happen after 2013.

SOCIAL UNREST

Turn-out has dropped at protest rallies as Greeks weary of repeated marches, but analysts warn anger could flare up at any time if the government imposes more austerity, fails to show sacrifices are bearing fruit or eases pressure on corruption.

Rising unemployment and inflation are also two important risks as are plans to privatise some sectors including railways.

The main private sector union said it will not strike against austerity measures anytime soon, relieving some pressure on the government after six general strikes this year.

But the public sector union has vowed to press ahead with protests. Various smaller groups, including truckers, are staging regular strikes. Greeks want the government to take steps to boost growth, which it has no room to do now.

What to watch:

- The turnout at an Oct. 7 public sector strike, whether small groups keep staging regular strikes and if any spark triggers Greeks to go back to the streets in large numbers.

- Will the government's hard line on a truckers' strike convince others not to press ahead with protests or will the government bow to pressure if discontent rises or turns violent?

- Will opinion polls turn against Papandreou, whose ratings are declining but is still more popular than the opposition? Also watch how the government fares in Nov.7 local elections.

- Will Greeks continue, however grudgingly, to accept austerity once the deficit has started going down and finances look better?

RECESSION

Analysts warn that pushing belt-tightening too far will deepen the country's recession even further, making deficit-cutting targets much harder to reach.

The IMF and the EU see GDP shrinking by 4 percent this year, which would mark Greece's deepest recession in almost 40 years. The government hopes for a slightly milder contraction.

Key indicators show a bleak picture: tax hikes have pushed prices far above the euro zone average unemployment hit a 10-year high of 11.8 percent in the second quarter and producer prices increase while credit growth slows.

In a sign that recession is deepening, many shops in Athens are shutting down. [ID:nLDE6820Q8]

What to watch:

- Key indicators: Oct. 7: Sept consumer price inflation; Oct. 11: Aug Industrial output; Oct. 14: July unemployment.

- To what extent lower tax revenues and increasing jobless benefit costs impact government revenues and fiscal targets.

- What happens with plans for consolidation of the banking sector. Piraeus Bank (BOPr.AT) has offered to to buy government stakes in ATEbank (AGBr.AT) and Hellenic Postbank (GPSr.AT).

- Whether efforts to attract more foreign investment from countries such as Qatar and China are successful.

DEFAULT, RESTRUCTURING?

Greek and EU officials regularly say that the country will not default but markets are still worried, pressuring banks and insurers exposed to Greek sovereign debt.

A Reuters poll of 60 economists in August put the chances of a sovereign debt restructuring in Greece over the next five years at 43 percent. [ID:nLDE67I0L5]

Greece successfully started in September to issue T-bills twice a month. Foreign take-up picked up and yields eased for the first time since the debt crisis broke. [ID:nLDE68K0VZ]

Its international backers assured investors they would not abandon Athens at the end of the bailout plan if it fulfilled reforms but failed to regain market trust [ID:nLDE68I0D0].

What to watch:

- If yields continue to ease in the upcoming T-bill sales. Auction dates will be Oct. 12 for 26 and/or 52 week T-bills and Oct. 19 for 13-week T-bills.

- Any details on plans to sell longer-term debt some time next year and to tap Greek money abroad through 'diaspora' bonds.

- Will Greece lose Fitch investment grade and be rated junk by all three major agencies? [ID:nSLAKKE6CV]

- Any more comments on the prospect of Greece getting more aid once the 3-year package runs out if needed to avoid default.

For political risks to watch in other countries, please click on [ID:nEMEARISK] (Editing by Sonya Hepinstall)