By Deepa Babington
ATHENS (Reuters) - When Jean-Claude Juncker, head of the euro zone's finance ministers, arrived in Athens last week, Greek Prime Minister Antonis Samaras ran down red-carpeted steps to envelope him in a warm embrace.
In front of the man representing Greece's biggest creditor, the governments of the euro zone, Samaras was understandably eager to make an impression, and duly pledged to do his utmost to win back Europe's trust.
The conservative leader was not always so keen.
Barely nine months ago he infuriated European officials by refusing to give his written backing to austerity policies demanded in return for the rescue funds that spared Greece from financial collapse.
Given his history of dubious political choices that included voting against Greece's first bailout, Samaras has surprised many - including some officials among skeptical EU and IMF lenders - by trumpeting his resolve to push through cuts and reforms that have tripped up previous leaders.
Deftly sidestepping pre-election rhetoric of an overhaul to the bailout and pledges to avoid across-the-board wage cuts, Samaras meekly promised to restore Greek credibility and promptly set to work on new austerity cuts that include plans for controversial labor reductions.
Much of that appears tied to his determination to secure Greece's next tranche of aid of about 31 billion euros that is on hold, in the hope it will end constant speculation of a Greek exit from the euro zone and shore up its banks, ultimately setting the wheels of the depressed economy in motion again.
"He is determined to adapt because he doesn't want the grenade to explode in his hands. And at the moment there is a risk that the grenade, in other words bankruptcy, will explode in his hands," said political analyst John Loulis.
"He doesn't have a choice, because if that were to happen, apart from the disastrous effects on the country, his political career would be finished as well."
Even then, whether Samaras manages to deliver will depend on how well he reins in fractious allies and whether his weak coalition can persist in the face of anti-austerity protests from Greeks who are already at boiling point.
Samaras is to some extent basking in the reflected light of Finance Minister Yannis Stournaras, an economist well respected in Brussels, who is widely seen as having boosted the government's credibility.
But Samaras also has to contend with the dark shadows cast by Socialist ally Evangelos Venizelos, a former finance minister who has attacked the bailout he helped draft after his party was pummeled in elections.
"I'm a little concerned that Venizelos is behaving the way Samaras was in the (Lucas) Papademos government, when he was referred to as the 'head of the pro-government opposition'," said Theodore Couloumbis of the ELIAMEP think-tank, referring to Samaras's half-hearted support of the previous government.
"I think Samaras can deliver, but it's not up to him alone, because it's a tri-partite coalition."
The stakes could not be higher as Samaras embarks on his drive to reform a bloated public sector, step up long-delayed privatizations and push through nearly 12 billion euros of austerity cuts for the next two years.
Fed up with Greece's repeated failure to reform, European leaders including German Chancellor Angela Merkel and French President Francois Hollande bluntly warned Samaras during a European tour last week that the country would get no further aid, much less the two additional years it is seeking to hit budget targets, unless he can show results.
Without further aid, Greece will be staring at certain bankruptcy and a return to the drachma.
A source close to the troika said Samaras's team had made a positive start by shifting the political debate away from populist promises made during election campaigning that appeared at odds with Greece's pledges to its lenders.
"They've moved some of that behind them, and they've managed that quite well politically," the source said.
Despite Samaras's election pledge to avoid firing public sector workers, the government has resuscitated the plan for a so-called labor reserve that earmarks civil servants to be eventually laid off, as part of the 2013-2014 savings plan.
Campaign pledges to avoid cutting wages for "special" categories such as policemen and judges have also been ignored, and such cuts are back on the table.
Samaras still has to convince Venizelos and his other ally, Democratic Left leader Fotis Kouvelis, to sign up to the entire package, and some of the proposals may be shelved.
But despite weeks of wrangling, both allies say they broadly agree on the cuts and have signaled the package will have their blessing next week when troika officials arrive in Athens.
In a bid to overcome the allies' concerns about protecting poor Greeks, the government wants to force those earning more to share a bigger burden of the cuts - from a 2 percent wage cut for low-wage earners to a 12-14 percent reduction for high-income earners, a government official said.
Far tougher for Samaras to pull off will be incremental structural reforms to make the economy more competitive and efficient, including overhauling its notoriously ineffective tax collection system.
Greece has notched up some limited progress - deregulation in the trucking industry has pushed fees for licenses down to about 2,000 euros each from as high as 180,000 euros previously. But efforts to open up other tightly guarded professions such as pharmacists have been repeatedly thwarted by powerful lobbies.
Moves to streamline the public sector, which employs almost a fifth of the country's 4.2-million workforce, are routinely blocked by unions who are quick to strike and point out that Greece's constitution bars firing civil servants.
The government is also under pressure to show it can push through long-delayed privatizations, which the source close to the troika says is still among Greece's "biggest stumbling blocks".
The administration quickly resolved the issue of troubled state lender ATEbank by handing it to rival Piraeus and now appears ready to settle the fate of another loss-making state-controlled bank, Hellenic Postbank, after saying it was not viable. But Greece is still a long way short of its targets for privatization proceeds this year.
"We need a quick win on privatizations," the government official acknowledged.
"When we came to the government, we realized that we don't only have a financial deficit, but also a deficit of credibility, which is much more dangerous, because no-one would talk to us. The first step is to regain credibility."
(Additional reporting by Harry Papachristou and Karolina Tagaris; Editing by Will Waterman)
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