The IMF warned Greece on Wednesday it must redouble reform efforts to avoid derailing its fiscal program, key to dealing with a huge debt mountain.
The sternest IMF warning since a 110 billion euro EU/IMF bailout a year ago pulled the troubled euro zone member back from the brink of bankruptcy was delivered as European officials raised the possibility of a Greek debt restructuring.
The view that seems to be taking hold is that the government program is not working, the IMF's chief of mission to Greece, Poul Thomsen, told an economic conference in Athens.
The program will not remain on track without a determined reinvigoration of structural reforms in the coming months. Unless we see this invigoration, I think the program will run off track, he added.
A deep recession and persistent tax evasion have kept revenues low, threatening fiscal targets, while tension in ruling party ranks is hampering Greece's reform efforts, prompting market talk that debt restructuring is unavoidable.
Europe's top financial officials broke a taboo on Tuesday and acknowledged for the first time that Greece may have to restructure its debts.
Some Greek officials have backed the idea of a soft restructuring, for example by extending repayments, but Prime Minister George Papandreou said late on Tuesday this would do more harm than good and pledged to redouble efforts.
We, the Greek government, European institutions, the other euro zone countries, all continue to believe that the costs far outweigh any potential benefits, he said.
LACK OF CONSENSUS
Papandreou rode a wave of public anger at scandals to a landslide election victory in 2009. But 18 months of tough austerity measures have cut his party's popularity to about 30 percent, slightly above the conservative opposition, polls show.
Dissenting voices from within his party have become bolder and there is little hope for broader political consensus in a country where coalition governments have historically failed.
International lenders said this week that getting all parties on board, as was the case in Portugal before securing a bailout, should be a condition for any further help to Greece.
But the main conservative opposition New Democracy party, which voted against the bailout in parliament, has consistently refused to back the government. Smaller leftist parties also vehemently oppose the deal.
The conservative Kathimerini daily lamented the lack of cooperation in its main editorial on Wednesday: This is the real world of partisan egotism and populist soundbites.
About 80 percent of Greeks asked in a recent poll said they disagreed with the government's handling of the crisis.
Thomsen said improving tax administration was behind schedule and remained a key target in order to avoid burdening the public with more wage cuts or tax hikes.
The tax burden is already very high ... This has to come from structural reforms, he said.
Papandreou vowed a full fledged attack on tax evasion saying it not only hurt growth but also caused social injustice and public belief in lack of fairness.
Greece has made some progress in the first year of the plan but cut its deficit only to 10.5 percent of GDP in 2010, more than two percentage points over an initial target. Without invigorated reforms, it will miss this year's 7.6 percent target and be unable bring it much below 10 percent, Thomsen said.
In his first public comments since EU and IMF senior officials started an inspection visit to Greece last week, he said it was not clear if Greece would be able to return to bond markets next year as planned. On a more positive note he said the economy was becoming more competitive.
EU and IMF inspectors are still waiting for Greece to fill gaps in its proposed budget fiscal and privatization plans -- which are key to releasing the next tranche of aid -- and will continue talks this week, sources have said.
European Central Bank Executive Board member Juergen Stark also told the same Athens conference that a debt restructuring of any kind would not solve Greece's problems.
A debt restructuring will wipe out part or all the capital of Greek banks, so it is a recipe for catastrophe, he said. If the (economic adjustment) program is implemented one- to-one, then debt sustainability is ensured and Greece is solvent.
The recent arrest of IMF head Dominique Strauss-Kahn on attempted rape charges has placed a question mark over the leadership of the fund and in turn its role in the euro zone debt crisis.
(Writing by Dina Kyriakidou; editing by Philippa Fletcher)