IMF mission chief says Greece is at crossroads

BERLIN Sun Oct 9, 2011 8:10am EDT

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BERLIN (Reuters) - Greece is at a crossroads and will need to implement "much stricter structural reforms" than seen so far, IMF mission chief to Greece Poul Thomsen was quoted as saying by a German paper on Saturday.

The gloomy comments suggested the IMF was still unsure whether current talks on a vital aid tranche for Athens would conclude positively, given doubts over Greece's willingness to reform and the impact of Greek strikes and riots.

"Greece is at a crossroads," he was quoted as saying by Welt am Sonntag. "It is clear the programme will not work if the authorities do not take the path that requires much stricter structural reforms than those that we have seen so far."

The IMF on Friday dismissed a statement by the Greek government that the deal on aid was already completed.

"It is going two steps forward, and one backwards," Thomsen said. "The Greek government understands that many of the most difficult changes lie ahead. At the same time, the political and social fatigue is growing."

Athens could run out of cash as soon as mid-November without the new eight billion euro aid installment, increasing the risk of a default that would drag the euro zone deeper into a debt crisis already shaking financial markets worldwide.

Inspectors from the IMF, the European Commission and the European Central Bank -- known as the troika -- resumed last week their review of Greece's progress under a multi-billion euro bailout, after leaving Athens four weeks before over disagreements on how to put its finances back on track.

"The Greeks believe it is enough to make laws," the EU Commission's Matthias Mors told the Welt am Sonntag. "But it takes time to implement. And often the right structures are lacking, for example in tax administration."

A senior troika official told Reuters on Wednesday that the inspectors were likely to give the green light to the aid but that it was not assured.

The EU and IMF first want to receive more details on the implementation and impact of plans announced last month to slash the public sector workforce and increase taxes to plug a bigger-than-targeted fiscal gap, the official said.

Talks between Greece and the troika will continue on Sunday, focusing on the country's deficit cut plan for 2013 and 2014, a finance ministry official said on condition of anonymity after a further, four-hour negotiating round between Finance Minister Evangelos Venizelos and the EU/IMF inspectors.

Athens shocked financial markets by announcing that it would miss 2011 deficit targets set as conditions of a bailout aimed at staving off bankruptcy, despite a series of tax hikes and spending cuts.

Thomsen said he had never seen riots against austerity measures as intense as in Greece.

"People express their frustration sometimes in very unpleasant ways," he said. "That is one of the ugly aspects of my work. And the intensity of it here is new for me."

EU leaders will meet in Brussels on October 17-18 to discuss revising a July 21 deal to provide Greece with a second rescue package. They may ask investors to accept losses on their holdings of Greek debt even larger than the 21 percent write-down set out in the July deal.

A leading member of German Chancellor Angela Merkel's conservatives told a paper on Saturday Greece was near bankruptcy and must give up part of its sovereignty to obtain the large debt forgiveness it needs to survive.

Michael Fuchs, a deputy parliamentary floor leader for Merkel's Christian Democrats (CDU), also told Greek newspaper "Real News" that the debt-laden country might be better off outside the euro zone.

(Additional reporting by Harry Papachristou; Editing by Alison Birrane)

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