Senior EU and IMF inspectors arrived in Athens on Wednesday to press Greece to shore up its finances, while workers walked off the job to protest against austerity-induced recession.
The review will determine whether Greece will get a fifth aid tranche from the 110 billion euro bailout that saved it from bankruptcy last year and whether Athens should be given improved loan terms or more aid to avoid debt restructuring.
If Greece did not receive the next 12 billion euro tranche, key to pay 13.7 billion euros of immediate funding needs, it would be tantamount to default.
One year into the EU/IMF deal, investors are convinced the debt-choked country's bailout is not enough and Greece will be forced to restructure its debt, imposing losses on private bondholders, unless lenders step in with more funds.
Euro zone officials including German Chancellor Angela Merkel say they will wait for the result of the inspection visit before taking any decisions.
The EU and IMF mission chiefs started their visit on Wednesday with a meeting with Finance Minister George Papaconstantinou as hundreds of workers on a 24-hour strike prepared gathering to protest against austerity which unions say is strangling the economy.
Athens was nearly deserted with many shops and public services closed and the officials are likely to have seen posters covering the Greek capital reading: We can't take it anymore. The rich and the tax evaders should pay.
Vassilis Hatzigiannis, a 31-year-old striking lawyer said: We've reached a dead-end and the worst still lies ahead of us and our country. This policy is not getting us out of the crisis, without growth we can't move on.
Greek debt prices stabilized, though investors remained skeptical that it can survive without further help. Markets are certainly braced for some form of restructuring in the long-run as Greece labors with a 327 billion euros debt mountain.
Ten-year Greek bonds currently change hands at around 55 percent of their face value, carrying a secondary market yield of 15.696 percent -- little changed on the day, but up more than 3 percent since the start of the year.
The Socialist government has cut salaries and pensions and increased taxes, despite repeated strikes, to meet bailout targets but the measures have plunged the country into a deep recession and crimped tax revenues, hampering efforts to tackle a debt of nearly 150 percent of GDP.
Ministers are now conceding that Greece cannot regain investor trust to go back to the markets for finance in 2012.
More austerity is probably not good for the economy, because it will deepen the recession and we don't know whether it is going to produce results in terms of fiscal consolidation, said Diego Iscaro from IHS Global Insight. On the other hand, people will start losing faith in the government strategy.
Private sector union GSEE and its public sector sister ADEDY, which represent about half the workforce, say austerity is killing the economy, which contracted by 4.5 percent in 2010 and is expected to shrink by another 3 percent this year.
Unemployment jumped to a record 15.1 percent in January.
The nationwide strike grounded flights and halted shipping. Hospitals will operate on skeleton staff, schools are closed and city transport is disrupted. Only emergency flights will be allowed between 0900 and 1300 GMT.
We expect massive protests. People feel they can't make ends meet and at the same time believe that these policies are not effective. This is an explosive mix, said Costas Panagopoulos, at ALCO pollsters.
Greek newspapers reported on Wednesday that Greece is nearing agreement for supplemental EU/IMF loans of 50-60 billion euros to cover its funding gap in 2012 and 2013 in exchange for bold privatizations.
But a euro zone source in Brussels said Greece needed to show credible progress on meeting agreed targets for fiscal consolidation and privatization of state assets before further emergency funding could be considered.
Prime Minister George Papandreou will chair a cabinet meeting on Wednesday, the second is an many days as he tries to rally support for new fiscal and privatization plans and quell mounting discontent among party ranks.
Papandreou told his ministers to be confident in the strength of the Greek people, said a government official who requested anonymity after Tuesday's cabinet meeting, called after some ministers complained about a slowing pace of reforms.
The EU and IMF mission chiefs will be in town for about a week, after experts started the audit in early May. Officials said they would focus on a 2011-2015 fiscal plan and on progress in raising 50 billion euros from privatizations by 2015.
(Writing by Ingrid Melander; editing by Mike Peacock)