In deep

Greek Finance Minister Evangelos Venizelos held a teleconference Monday with officials from the European Union, the International Monetary Fund (IMF), and the European Central Bank (ECB), to reassure international creditors providing the country with bailout funds.

The emergency call came a few hours after Venizelos announced plans for Greece to speed up reforms aimed at bringing its debt crisis under control, but the country's creditors (on the other end of the telephone call) wanted to talk things through to make sure Greece's plans are on track.

A decision on whether officials from the 'troika' (EU, IMF, and ECB) would need to pay a visit to Greece to sign off on Greece's belt-tightening efforts was put off until Tuesday evening, when the conference call would resume.

Italy downgraded

In the meantime, rating agency Standard and Poor's said it had downgraded Italy's sovereign debt rating by one notch, from A+ to A, with a negative outlook, which indicates further downgrades in the future.

The agency named economic, fiscal and political weaknesses as the reason for the downgrade.

"In our view, the authorities remain reluctant to tackle these issues," it said in a statement, citing an inefficient public sector and lackluster foreign investment as well as low labor participation rates.

In Greece meanwhile, the latest plans announced by Venizelos include several thousand cuts to civil servants' jobs.

Greece, like Italy, has been under increasing pressure from international officials to actually implement long-promised austerity measures or risk having its line of credit cut off.

"The idea is to wrap up all this information at the highest level and then of course decide on the next steps," said Amadeu Altafaj Tardio, a spokesman for EU Economy Commissioner Olli Rehn in Brussels.

Lack of faith in Greece

Two weeks ago, a review by troika officials indicated that Greece was off the mark when it came to getting its finances in order and adhering to consolidation plans agreed upon with the IMF and EU.

The troika officials discovered a two-billion euro ($2.75 billion) shortfall in the country's budget for this year and are considering withholding the next installment of Greece's 110-billion euro bailout agreed in May 2010.

Without the next cash boost, Greece risks defaulting on its debt by the middle of October.

"We expect the Greek authorities to explain, in particular, how they intend to close the fiscal gaps in 2011 and 2012 and how they plan to proceed with the structural reforms and privatizations," Tardio said.

The lack of confidence in Greece's reform plans come from the fact that the Greek parliament can't make up its mind on what form the reforms should take.

"The privatization is behind schedule because politicians can't agree how to do it. If you wait ... the country will go to a default," said the IMF's Greece representative, Bob Traa, at a business symposium near Athens.

"The country cannot go forward without the true implementation of major structural reforms," said Venizelos.

'Catastrophic risk'

Greece's precarious financial situation has attracted global attention due to the fears associated with what could happen if the country defaults on its debt. Nightmare scenarios from Greece leaving the eurozone to a renewed global recession to the downfall of the euro itself have been speculated upon.

US Treasury Secretary Timothy Geithner spoke of the "catastrophic risk" to markets posed by Greece's debt crisis.

"We have a huge stake as a country in helping them deal with those challenges," he said at the White House on Monday, "so we are working very closely with them and being very supportive as they try to craft a more effective strategy."

Geithner was in Poland last week as part of a meeting of European finance ministers on the debt crisis, which only seems likely to get worse should Greece fall.

Public backlash

The proposed austerity measures are unpopular with the Greek public. Many would have their pensions cut or lose their jobs completely. The country's main union, GSEE, has called for a nationwide general strike of public sector servants on October 6.

The public distaste for the proposed cuts adds to international doubts and caution on the markets that Greece will actually deliver on its promises.

Antonis Samaras, head of the conservative opposition in Greece, is among the sceptics.

"The government is a prisoner of its own mistakes," he said. "It is not in a position to reach its goals."

Author: Matt Zuvela, Nicole Goebel (dpa, AP, AFP)
Editor: Rob Turner