ATHENS (Reuters) - Greece hopes a major state sell-off this autumn will persuade international inspectors arriving on Friday to keep the country's aid lifeline open despite scant progress on reforms promised in return for the cash.
The so-called troika of the International Monetary Fund, European Commission and European Central Bank will assess Greece's progress towards targets set under its bailout before deciding next month whether to pay out a 31 billion euro loan.
The two-month-old conservative-led coalition government is cobbling together more budget cuts for 2013-14 to convince the inspectors, and rushed to announce a raft of successes this week, including progress on netting tax evaders.
But Greek government officials concede they have made little headway with structural reforms agreed under the 130 billion euro bailout, and which are vital to turning the economy around, and say at least one selloff is needed to turn the tide.
"We have fallen behind and time has been lost, partly because of the repeat election," a senior government official told Reuters on condition of anonymity.
"We hope to have a quick win this autumn, a major privatization to send a message abroad and shift sentiment," he said, hinting it might be state betting firm OPAP (OPAr.AT).
Greece's partners are increasingly reluctant to put up cash for a country that has not met the terms of its 130 billion euro aid deal and which threatens to bring down the whole euro zone.
They have welcomed Prime Minister Antonis Samaras's switch from fierce opponent of the bailout to its main champion but have yet to agree to give him the extra time he wants to achieve targets during what he has called Greece's "Great Depression."
"The climate has changed as far as our intentions are concerned but our partners remain to be convinced about our actions," the government official said. "The prime minister has lit a fire under ministers to deliver."
The troika will examine in minute detail a plan to slash the budget by an additional 11.5 billion euros in the next two years, mostly by reducing state salaries and pensions, a move sure to prompt protests from a public already fed up with cuts.
Painful as these measures are, however, Greek officials have acknowledged they will not be enough to restore fiscal health and allow Athens return to international bond markets in 2015.
With Greece's economy now seen shrinking by about 7 percent this year, far more than the 4.5-5 percent envisaged when that target was set, Athens is eyeing cuts of about 13.5 billion euros just to offset the impact from lower tax revenues.
Leading a shaky coalition with two leftist parties which have yet to approve the cuts, Samaras is striving to convince the public this is the last round of austerity. One in four Greeks is out of a job and violent street protests are common.
Apart from appointing new heads to the privatization agency, no tangible progress has been made on promised changes such as liberalizing markets and professions or cutting staff at state companies, which poke a huge hole in the budget.
"Samaras must take on his own constituents, such as lawyers and pharmacists, that is his litmus test," a troika source told Reuters on condition of anonymity. "The adjustment is so difficult because it is based on poverty, not on cutting profit margins."
The severity of the recession means lenders are likely to forgive a small deviation from 2012's 7.3 percent of GDP budget deficit target, officials said. Risks to the rest of the euro zone may also convince partners to turn a blind eye to Greece's shortcomings and waive through enough cash to keep it afloat.
"I suspect some fudge will be agreed in the end but I doubt it will guarantee Greece's place in the euro," said Ben May of Capital Economics. "It will be a bit of a roller coaster ride."
Lenders paid only part of a June loan installment and Athens had to seek ECB permission to sell more T-bills in order to repay an expiring bond in August - a type of bridging exercise it may employ again.
Partners will eventually have to decide whether to give Greece - which has so far secured 240 billion euros in EU and IMF bailout funds - more cash, time or an interest rate cut to escape a collapse that could also bring down Italy and Spain.
"I think in the end it's inevitable the bailout plan will break down and it's irrelevant who puts the nail in the coffin - Greece or its partners. The key issue is when," said May.
(Editing by Catherine Evans)