Greece resumed talks with its international debt inspectors Tuesday, facing a race against the clock to avoid becoming the first country that uses the euro to default on its debts and potentially trigger a chain reaction that could ultimately destroy the European single currency itself.
The debt inspectors _ whose mission chiefs are expected in Athens Friday after technical teams lay the groundwork _ face a massive task. They have to once again find more ways to cut spending and raise revenue in a country that is increasingly seen as immune to fundamental reforms.
Apart from identifying financial shortfalls produced since their last visit in December, they also have to set up a detailed policy and spending program for the next two years if Athens wants to have a chance at securing an extra euro130 billion ($166 billion) in rescue loans. Those loans were promised in October, after it became clear that a first euro110 billion bailout granted in May 2010 was not enough to buffer a Greek economy in freefall.
And the inspectors from the International Monetary Fund, European Central Bank and European Commission _ known as the 'troika' _ are not the only foreign officials in town this week.
While they go through Greece's books, the government in Athens is also locked in a battle to convince banks and other private bondholders to forgive half of the Greek debt they hold _ an essential part of the second rescue package.
At the same time, the head of the European Union's task force for Greece is also in the capital, looking to streamline the country's sprawling bureaucracy, trying to improve lax tax collection and kickstart stalled infrastructure projects.
For the Greek government, the stakes could not be higher. The country has to repay a euro14.5 billion bond in March _ one that it can't afford to pay. Negotiations with the bondholders on the bond swap _ and ideally the troika _ have to be concluded by Jan. 30, when European leaders meet in Brussels to scrutinize the deal.
The crucial bond swap negotiations with the Institute of International Finance, which represents bondholders, stalled on Friday after a sudden disagreement arose with other eurozone countries and the IMF over the interest rate on the new bonds.
Talks will resume Wednesday, the IIF said, which went on to press the "sense of urgency" over the need for a deal. However, it was not clear whether positions had moved closer together since last week. After Greece's economy shrank almost 6 percent last year, the official lenders are trying to cap the amount of money they have to pump into the country.
Time is running short. Ideally, a final outline of the debt deal should be reached by the end of this week, with a formal public offer at the beginning of February, a senior Greek finance ministry official said last week. Only then will Greece know how many bondholders are actually willing to participate voluntarily.
If the agreement goes ahead, it would both reduce the amount the country has to pay on its debt and extend the maturity date, giving the country much-needed breathing space. If it doesn't, it puts into question the entire second bailout and makes the possibility of a messy default alarmingly likely.
Such is the scene in Athens these days, almost two years after a new government called for international help to plug a budget deficit that was much bigger than expected. Since then, the troika has flown over more or less every three months, checking on progress and often coming back disappointed.
Each time their visits have grown longer, the debate over yet more austerity measures more acrimonious, and invariably, a broad selection of workers go on strike. Yet resignation has set in among many Greeks, who see no particular result arising from labor walkouts and demonstrations that often turn violent.
All this takes place against a backdrop of growing frustrations among Greece's official creditors, the IMF and the other eurozone countries.
"The potential ramifications of a Greek disorderly default are so negative it is still likely that some kind of agreement will be reached," said Gary Jenkins, director of Swordfish Research. But "the fact that such a scenario is possible after all the bailouts and talks will probably continue to be a drag on confidence even if the problems are resolved."
Last Friday, U.S. rating agency Standard & Poor's downgraded the credit score of nine of the 17 countries in the eurozone. Nonetheless, Spain, one of the countries hit by the downgrade, successfully auctioned off euro4.9 billion ($6.21 billion) in short-term debt at sharply reduced interest rates Tuesday, an indication that investor sentiment had not been dented. Portugal, another S&P target, also on Tuesday secured an agreement with trades unions and employers on a package of labor reforms aimed at reversing the country's steep economic decline.
Greece also raised euro1.625 billion ($2.06 billion) in short-term debt, with its 13-week treasury bills selling at an interest rate of 4.64 percent, marginally lower than the 4.68 percent in the last such auction in December.
At the Brussels-based Commission, the missions to Greece are seen as one of the most taxing assignments. Officials joke that with the troika trips to Greece, one never knows when they will end, be interrupted, or restarted. Technical experts work in shifts, with a second group flying in once the first batch has reached its limits. Nonetheless, Europe remains determined to reach a solution.
"We have not given up on Greece at all," Marco Buti, the head of the Commission's economic affairs division, which supplies the troika experts, said in Brussels Tuesday. "Actually we are working very very hard to make sure the Greeks embrace the right policies."
Gabriele Steinhauser in Brussels and Derek Gatopoulos in Athens contributed to this story.